For Release: April 9, 1998
COMMODITY FUTURES TRADING COMMISSION LIFTS BAN
ON AGRICULTURAL TRADE OPTIONS; ANNOUNCES PILOT
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 http://www.cftc.gov.