For Release: April 7, 1999
COMMODITY FUTURES TRADING COMMISSION
FURTHERS EDUCATION INITIATIVE RELATED TO
AGRICULTURAL TRADE OPTIONS
Washington, D.C. -- The Commodity Futures Trading Commission (CFTC) today released two educational pamphlets on agricultural trade options entitled "How to Become an Agricultural Trade Option Merchant" and "Agricultural Trade Options--Information for Lenders and Extension Agents." These brochures are intended to complement a previously released CFTC pamphlet, entitled "Agricultural Trade Options--What Agricultural Producers Need to Know." In June 1998, the CFTC began a three-year pilot program to permit the purchase and sale of agricultural trade options. An agricultural trade option is an agreement giving an agricultural producer the right to deliver a commodity in the future for a set price. However, the producer is not obligated to deliver, and may simply choose to "walk away" from the option contract. In return for this right, the producer pays a fee, usually called the option premium to the option's seller. Agricultural trade options may also be used by agricultural processors, commercial users of, or merchants handling, the commodity or its products or byproducts.
Agricultural trade options are not traded on a commodity futures exchange. Rather, they are traded directly between commercial parties. Prior to the adoption of the CFTC's pilot program, such options were not permitted to be offered or sold in the United States. The CFTC's pilot program is intended to permit the offer and sale of this risk management tool to agricultural producers and other agricultural enterprises with appropriate safeguards.
These pamphlets provide an overview of agricultural trade options and the pilot rules for trading them. Under the pilot program rules, firms in the business of offering or selling agricultural trade options must register as Agricultural Trade Option Merchants (ATOMs) and their sales representatives must register as Associated Persons. The informational brochure designed for those interested in offering or selling agricultural trade options summarizes how to become an ATOM. The remaining brochure offers lenders, agricultural extension agents and agricultural processors, merchants or users general information on the uses of this risk-management tool.
A copy of these brochures may be obtained by contacting the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C., 20581, (202) 418-5080 or by accessing the CFTC's web site at www.cftc.gov (Reports and Publications--Popular Brochures On-Line).