[Federal Register: March 14, 1997 (Volume 62, Number 50)]
[Page 12156-12158]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



Chicago Board of Trade Futures Contracts in Corn and Soybeans;
Notice That Delivery Point Specifications Must Be Amended

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of, and request for public comment on, response of the
Chicago Board of Trade to notification to amend delivery


SUMMARY: The Commodity Futures Trading Commission (``Commission''), by
letter dated December 19, 1996, notified the Board of Trade of the City
of Chicago (``CBT''), under section 5a(a)(10) of the Commodity Exchange
Act (``Act''), 7 U.S.C. 7a(a)(10), that the delivery terms of the CBT
corn and soybean futures contracts no longer accomplish the objectives
of that section of the Act. Under section 5a(a)(10), the CBT was
required to respond by March 4, 1997, seventy-five days from the date
of the notice.
    By letter dated March 4, 1997, from Patrick H. Arbor, to
Chairperson Brooksley Born, the CBT responded by providing a status
report to the Commission of its actions. In that response, the CBT
reported that a ``working alternative'' had been approved by the
exchange board and would be forwarded to the membership for a vote.
    The Commission is providing notice of the CBT's working alternative
in order to provide the public with an opportunity to comment to the
Commission on it. The Commission has determined that publication of the
CBT working alternative for public comment is in the public interest,
will assist the Commission in considering the views of interested
persons, and is consistent with the purposes of the Commodity Exchange

DATES: Comment must be received by March 31, 1997.

ADDRESSES: Comments should be mailed to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
D.C. 20581, attention: Office of the Secretariat; transmitted by
facsimile at (202) 418-5521; or transmitted electronically at
[secretary@cftc.gov]. Reference should be made to ``Corn and Soybean
Delivery Points.''

FOR FURTHER INFORMATION CONTACT: Blake Imel, Acting Director, or Paul
M. Architzel, Chief Counsel, Division of Economic Analysis, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW., Washington, D.C. 20581, (202) 418-5260, or electronically, Mr.
Architzel at [PArchitzel@cftc.gov].

SUPPLEMENTARY INFORMATION: Section 5a(a)(10) of the Act provides that
as a condition of contract market designation, boards of trade are
required to:

permit the delivery of any commodity, on contracts of sale thereof
for future delivery,

[[Page 12157]]

of such grade or grades, at such point or points and at such quality
and locational price differentials as will tend to prevent or
diminish price manipulation, market congestion, or the abnormal
movement of such commodity in interstate commerce. If the Commission
after investigation finds that the rules and regulations adopted by
a contract market permitting delivery of any commodity on contracts
of sale thereof for future delivery, do not accomplish the
objectives of this subsection, then the Commission shall notify the
contract market of its finding and afford the contract market an
opportunity to make appropriate changes in such rules and

    The Commission, by letter dated December 19, 1996, notified the CBT
under section 5a(a)(10) of the Act that its futures contracts for corn
and soybeans no longer were in compliance with the requirements of that
section of the Act. The text of the section 5a(a)(10) letter was
published in the Federal Register and public comment was requested. 61
FR 67998 (December 26, 1996).
    The section 5a(a)(10) letter offered the CBT guidance in meeting
the requirements of the Act in the form of four conceptual alternatives
to the current delivery specifications. These four alternatives
constituted ``a range of possibilities which could constitute
'appropriate changes' by providing for the necessary, viable linkage
with the cash market.'' 61 FR 67998, 68013. In offering this guidance,
the Commission noted that:

(b)y providing these alternatives, the Commission is not limiting
the CBT's ability to respond to this Section 5a(a)(10) notification,
nor is it specifying exact design criteria. Rather, these are
examples of various means by which the Commission believes the
objectives of the section could be met. In any event, the particular
contract specifications proposed by the CBT in response to this
notification, in order to meet the statutory requirement, should
provide for a linkage with the cash market through specific terms
which are in conformity with a substantial segment of that
underlying market.

61 FR 68012.
    The four alternatives offered by the Commission included a prior
CBT alternative that was previously rejected by the exchange
membership. This alternative provided for a warehouse receipt contract
deliverable at Chicago (at par), Toledo, Milwaukee, East Central
Illinois and the Northern Illinois River. The Commission noted, in
particular, that any such proposal should be modified to include price
differentials reflecting the fact that corn and soybeans become more
highly valued the further south the delivery location is on the
Northern Illinois River. Another alternative offered was a shipping
certificate contract centered on the lower Mississippi River. The
Commission also offered cash-settlement as an alternative for
    Finally, the Commission offered the alternative of increasing
deliverable supplies by adding to the contract shipping certificates
providing for delivery at barge loading locations on the Illinois River
and at St. Louis. Specifically, the Commission suggested that:

(a)n alternative specification that could also result in the
necessary increase to deliverable supplies would replace the
existing warehouse-receipt-delivery instrument with a shipping
certificate and provide for delivery at Illinois River barge loading
facilities, in addition to the contracts' existing Chicago, Toledo,
and St. Louis delivery points. The Illinois River delivery area
could be specified to include all or a substantial part of that
River. The contracts' par pricing location could be shifted to a
delivery location/area that has an active cash market, with
locational price discounts for other delivery points/areas set at
levels that fall within the range of commonly observed cash price
differences between the specified delivery locations.

61 FR at 68013 (footnote deleted).
    In publishing the section 5a(a)(10) letter to the CBT, the
Commission requested comment on general issues related to both the cash
markets for, and the CBT futures contracts on, corn and soybeans and on
the specific, relative merits of these suggested alternatives. The
working alternative under consideration by the CBT incorporates
portions of one or more of those suggested by the Commission, but is
sufficiently distinct that public comment on this additional
alternative would aid the Commission in its consideration of these

CBT Working Alternative

    The CBT's working alternative includes the following salient

                   Features of CBT Working Alternative

Underlying Instrument:                Corn                Soybeans
    (No changes to current    U.S. No. 1 +1.5       U.S. No. 1 +6 cents/
     quality differentials).   cents/bu.             bu.
                              No. 2 par...........  No. 2 par.
                              No. 3 -1.5 cents/bu.  No. 2-3% foreign
                                                     matter -6 cents/bu.
Primary Delivery Point......
(1)Illinois Waterway from
 Chicago, IL (including
 Burns Harbor, IN) to Pekin,
 IL at river mile marker
Alternate Delivery Point....
Locational Differentials....
(1)None, all locations at
Delivery Instrument.........
(1)Shipping certificate
Maximum Certificates Allowed
 to Issue.
(1)Lesser of registered
 daily rate of loading for
 the shipping station times
 30 or 25% of net worth.\1\
                                      Corn                Soybeans
Premium to Futures for        4 cents/bu..........  4 cents/bu.
 f.o.b. water conveyance.
Premium Charge:
    (Previously referred to
     as storage charge).
(1)$0.0012 per bu. per day
 in Chicago.

(1)$0.0010 per bu. per day
 on Illinois River.
Load-out Rate Barge.........
(1)At the registered daily
 rate of loading for the
 shipping station within 3
 business days following
 receipt of loading orders
 or within 1 business day of
 constructive placement
 whichever occurs later.
(1)300,000 bu. per day with
 3 days pre-advice.
(1)Takers of delivery in
 Chicago and Burns Harbor
 will have the option to
 receive rail loadout at the
 rate of 25 cars per day (35
 cars per day for batch
 weights and grades).
Last Trading Day............
(1)The business day prior to
 the 15th calendar day of
 the contract month.
Last Delivery Day...........
(1)The second business day
 following last trading day.
Regularity Eligibility......
(1)Minimum $2 million
 working capital and minimum
 $40 million net worth.
\1\ Current regular warehouses in Chicago and Burns Harbor would be
  allowed to issue a maximum number of shipping certificates equal to
  their current regular capacity.

[[Page 12158]]

    As Commission staff advised the CBT's Task Force during its
deliberations, the CBT alternative raises several important issues and
it differs from the Commission's in a number of significant respects.
The CBT alternative restricts the delivery area to only the northern
portion of the Illinois River. Unlike the Commission's suggested
Illinois River Shipping Certificate alternative, the CBT river-based
delivery area would not be in addition to the existing delivery points
on the contracts--including St. Louis and Toledo--but in lieu of them.
Moreover, the CBT alternative does not provide for locational price
differentials. Finally, unlike the contracts' current specifications
for loading against warehouse receipts, the CBT is considering
requiring that originators of shipping certificates maintain separate
queues, giving takers under the futures contract priority over other
load-out commitments.
    In order to assist the Commission in its consideration of these
issues, the Commission requests written data, views or arguments from
interested members of the public. Commenters are requested to analyze
and compare the relative merits of the CBT working alternative.
Commenters are specifically requested to address the following issues:
    1. Does the potential economic deliverable supplies or capacity on
the contract under the CBT working alternative meet the requirement of
the section 5a(a)(10) notification that the CBT modify the contracts'
specifications in order that they ``will tend to prevent or diminish
price manipulation, market congestion, or the abnormal movement of such
commodity in interstate commerce''? In particular, how does the
potential increase in delivery supplies or capacity which results from
the addition of the Illinois River shipping certificate compare to
deletion of deliverable supplies or capacity at Toledo? Is the net
result sufficient to prevent market disruption under foreseeable market
    2. How should the net change in economic deliverable supplies or
capacity be measured? How much of the load-out capacity of the barge-
loading facilities on the northern Illinois River likely will be made
available for delivery, particularly in light of the queuing aspect of
the CBT working alternative? In this respect, within the defined
delivery area is there a sufficient number of facilities, and is their
ownership sufficiently dispersed?
    3. Are the regularity eligibility requirements a significant factor
in determining the economic delivery capacity under the CBT working
alternative's terms? Are they sufficient or necessary to assure
performance on the contract?
    4. What are the implications of the working alternative's proposed
single delivery area, even if total deliverable supplies or capacity
were increased?
    5. What are the implications of the absence of locational price
differentials? In particular, is the working alternative consistent
with the pricing of corn and soybeans in the cash market of the
proposed delivery area? What are the implications for the availability
of registered certificates?

    Issued in Washington, D.C., this 10th day of March 1997, by the
Commodity Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-6470 Filed 3-13-97; 8:45 am]

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