[Federal Register: October 25, 1999 (Volume 64, Number 205)]
[Page 57442]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



Proposed Amendment To Convert the Kansas City Board of Trade's
Western Natural Gas ``Flat Price'' Futures Contract to a ``Basis''
Future Contract

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of proposed amendments to contract terms
and conditions.


SUMMARY: The Kansas City Board of Trade (KCBT or Exchange) has
submitted proposed amendments to its western natural gas futures
contract related to the pricing of the contract. The proposed
amendments were submitted under the Commission's 45-day Fast Track
procedures which provides that, absent any contrary action by the
Commission, the proposed amendments may be deemed approved on November
26, 1999--45 days after the Commission's receipt of the proposals. The
Acting Director of the Division of Economic Analysis (Division) of the
Commission, acting pursuant to the authority delegated by Commission
Regulation 140.96, has determined that publication of the proposals for
comment is in the public interest, will assist the Commission in
considering the views of interested persons, and is consistent with the
purpose of the Commodity Exchange Act.

DATES: Comments must be received on or before November 9, 1999.

ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb. Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 21st Street, NW Washington, DC 20581. In addition,
comments may be sent by facsimile transmission to facsimile number
(202) 418-5521, or by electronic mail to secretary@cftc.gov. Reference
should be made to the proposed amendments to the KCBT western natural
gas futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact Joseph B. Storer of the
Division of Economic Analysis, Commodity Futures Trading Commission,
Three Lafayette Centre, 21st Street NW, Washington, DC 20581, telephone
(202) 418-5282. Facsimile number: (202) 418-5527. Electronic mail:

SUPPLEMENTARY INFORMATION: The existing terms of the western natural
gas futures contract provide for prices to be quoted in dollars and
cents per MMBtu. The proposed amendments will convert the existing
``flat price'' futures contract to a ``basis'' futures contract, in
that prices would be quoted as a differential to the New York
Mercantile Exchange's (NYMEX's) Henry Hub delivery natural gas futures
contract. An additional amendment would reduce the hub fee charged for
physical deliveries by the operator of the WAHA Hub, the delivery point
on the contract, from the current two cents per MMBtu ($.02) to one
quarter of one cent ($.0025) per MMBtu.
    According to the Exchange:

    The idea of a basis contract was developed because it
represented the way in which the gas commercials and marketers used
our gas futures product. Since the inception of natural gas trading
at the KCBT, the overwhelming majority of trades done on this
exchange were versus offsetting trades at the New York Mercantile
Exchange (NYMEX) in order to lock in a basis differential between
east and west.
    However, over the past 18 months, the natural gas market has
experienced lower volatility and the basis between east and west has
been for the most part narrower than normal. This has caused basis
trade to migrate to the over-the-counter market. Part of the reason
for this is because the OPT market can package the basis trade into
one transaction. In an east/west futures basis trade, you have two
markets in which you must execute transactions, NYMEX and KCBT. With
the reduction of volatility and narrow basis differential, business
at the KCBT has diminished greatly, creating wider bid/ask spreads
and making it more expensive for market participants to do basis
trades in the futures market versus the OTC market.

    With regard to the proposed change in the hub fee applicable to
physical deliveries of natural gas current rules specify that it is the
seller's responsibility to pay this fee when physical delivery of gas
is made. According to the KCBT, after consultation with the WAHA Hub
operator the operator and the Exchange determined that the proposed
$.0025 cent fee was more representative of current conditions at the
WAHA Hub cash market.
    The Division requests comments on the proposed amendments and their
effect that the usefulness of the revised contract for hedging.
    Copies of the proposed amendments will be available for inspection
at the Office of the Secretariat, Commodity Futures Trading Commission,
Three Lafayette Center, 21st Street, NW, Washington, DC 20581. Copies
of the proposed amendments can be obtained through the Office of the
Secretariat by mail at the above address, by phone at (202) 418-5100,
or via the Internet on the CFTC website at www.cftc.gov under ``What's
New & Pending''.
    Other material submitted by the KCBT in support of the proposal may
be available upon request pursuant to the Freedom of Information Act (5
U.S.C. 552) and the Commission's regulations thereunder (17 CFR Part
145 (1987)), except to the extent they are entitled to confidential
treatment set forth in 17 CFR 145.5 and 145.9. Request for copies of
such materials should be made to FOI, Privacy and Sunshine Act
Compliance Staff of the Office of Secretariat at the Commission's
headquarters in accordance with 17 CFR 145.7 and 145.8.
    Any person interested in submitting written data, views, or
arguments on the proposed amendments or with respect to other materials
submitted by the KCBT, should send such comments to Jean A. Webb,
Secretary, Commodity Futures Trading Commission, Three Lafayette
Centre, 21st Street NW, Washington, DC 20581 by the specified date.

    Issued in Washington, DC, on October 19, 1999.
John Mielke,
Acting Director.
[FR Doc. 99-27734 Filed 10-22-99; 8:45 am]

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