Release: #4134-98

For Release: April 9, 1998

CFTC Notifies the New York Mercantile Exchange's COMEX Division of its Results of a Rule Enforcement Review

The Commodity Futures Trading Commission (Commission) has notified the COMEX Division (COMEX) of the New York Mercantile Exchange of the results of a limited-scope rule enforcement review completed by the Commission's Division of Trading and Markets (T&M). The purpose of the review was to evaluate COMEX's market surveillance program for compliance with section 5a(a)(8) of the Commodity Exchange Act and Commission regulation 1.51(a)(1).

T&M found that COMEX maintains an adequate market surveillance program for identifying indications of possible congestion or other market situations conducive to possible price distortion. COMEX also has adequate procedures for monitoring speculative position limits and accounts that exceed position accountability thresholds. In addition, COMEX reviews hedge exemptions and accountability levels regularly to ensure that they are appropriate for market participants. Moreover, T&M found that market surveillance inquiries are generally completed within the four-month requirement of Commission regulation 8.06.

However, T&M also found three aspects of COMEX's market surveillance program that should be improved. First, certain exchange of futures for physicals transactions reviewed by COMEX, among other things, lacked conclusive evidence that a change of ownership of the cash commodity had occurred. Second, the Control Committee did not meet often enough during potentially problematic contract expirations. Third, COMEX's investigation into possible price manipulation in the June 1996 copper future was too narrow in scope given the dominant participants' prolonged positions in both the cash and futures markets leading up to the June expiration.

T&M's report sets forth recommendations for improvement to address these issues. COMEX will have 60 days to respond to the recommendations. Copies of the report are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202)418-5080.