Release: #4135-98
For Release: April 9, 1998


Washington, D.C.--The Commodity Futures Trading Commission (CFTC) announced today the adoption of a pilot program to permit the trading of agricultural trade options. Trade options are off-exchange options offered to a commercial producer or user of the commodity. Trade options on many agricultural commodities have not been permitted for over sixty years. Once the new rules become effective, which will be sixty days after they are published in the Federal Register, off-exchange trade options may be traded, but only in compliance with the rules of the pilot program.

The CFTC's review of the ban on agricultural trade options responds in part to the increasing need of those in the agricultural community for risk management tools. As part of its review, the CFTC convened a number of public meetings to discuss the potential benefits and risks of agricultural trade options and to hear the public's view on the regulations under which agricultural trade options should trade. The CFTC received over 440 comments from the public on the rules that it initially proposed.

The pilot program requires that those entities in the business of soliciting and offering such options for sale to register with the CFTC as "agricultural trade option merchants." Agricultural trade option merchants are required by the CFTC to provide their customers with disclosure statements, to provide their customers with account information and to safeguard their customers' funds. The two types of disclosure statements include a first-time general disclosure of the risks of agricultural trade options and specific disclosures of the terms of each separate option entered into. Agricultural trade option merchants are also required to report to the CFTC summary information about their transactions.

The pilot program rules have been modified from the proposed rules in response to public comments received. The rules continue to provide important customer and financial protections against the types of problems recently associated with hedge-to-arrive contracts and the pervasive fraud and abuses in option sales which led to their being banned in the first place. The CFTC intends to reexamine these rules during and at the conclusion of the pilot program and will consider amendments to the rules as experience warrants.

Commissioners Holum and Spears issued concurring remarks. Copies of the Commission's rules, as well as the concurring remarks of Commissioners Holum and Spears, are available from the Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5080, and the Commission's internet website at