[Federal Register: January 23, 2003 (Volume 68, Number 15)]
[Notices]
[Page 3231-3233]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja03-28]
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COMMODITY FUTURES TRADING COMMISSION
Chicago Mercantile Exchange (CME): Proposed Amendments to the
Weight Specifications, Speculative Position Limits, Delivery Locations,
and Delivery Procedures for the Live Cattle Futures Contract
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of availability of terms and conditions of proposed
amendments to the CME's weight specifications, speculative position
limits, delivery locations, and delivery
[[Page 3232]]
procedures for the live cattle futures contract.
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SUMMARY: The Chicago Mercantile Exchange (CME or Exchange) has
requested that the Commission approve the subject proposed amendments
for the live cattle futures contract. The proposals were submitted
pursuant to the provisions of Section 5c(c)(2) of the Commodity
Exchange Act (Act) and Commission Regulation 40.4(a). Under the
proposals, the Exchange will:
1. Increase the maximum live cattle average deliverable live weight
by 25 pounds to 1,350 pounds, and increase the maximum individual
animal live weight by 25 pounds to 1,400 pounds for cattle graded on a
live weight basis;
2. Establish a ``scale down'' spot month speculative position limit
of 450 contracts which applies during the period beginning with the
close of business on the first business day following the first Friday
of the contract month until the close of business on the business day
preceding the last five business days of the contract month, after
which period existing 300 contract limit will apply through the last
day of trading;
3. Add delivery locations at Guymon and Texhoma, Oklahoma;
4. Establish penalties to be imposed at the sole discretion of the
United States Department of Agriculture (USDA) grader, on any seller
who has not properly presorted cattle for grading, and on any buyer who
disrupts the delivery process, at a rate of $0.15 per pound of live
cattle delivered;
5. Grant the CME the authority to prohibit futures delivery on
``auction days'' at delivery stockyards;
6. Provide for the establishment of an annual uniform grading and
documentation fee per delivery unit;
7. Eliminate the requirement that live-graded delivery cattle stand
without water during the time interval between 9 a.m. and the time of
grading; and
8. Provide for the application of price differentials to the
delivery of steer carcasses weighing between 950 and 1,000 pounds.
The Exchange intends to implement the amendments with respect to
all newly listed futures contract months beginning with the December
2003 contract month.
The Director of the Division of Market Oversight (Division) of the
Commission, acting pursuant to the authority delegated by Commission
Regulation 140.96, has determined that publication of the Exchange's
proposed amendments for comment is in the public interest, and will
assist the Commission in considering the views of interested persons.
DATES: Comments must be received on or before February 7, 2003.
ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. In
addition, comments may be sent by facsimile transmission to (202) 418-
5521 or by electronic mail to [email protected]. Reference should be
made to ``CME Live Cattle Amendments.''
FOR FURTHER INFORMATION CONTACT: Please contact Martin G. Murray of the
Division of Market Oversight, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,
(202) 418-5276. Facsimile number: (202) 418-5527. Electronic mail:
[email protected]
SUPPLEMENTARY INFORMATION:
Background
The CME's live cattle futures contract calls for delivery at par of
40,000 pounds of USDA estimated Yield Grade 3, 55% Choice, 45% Select
quality grade live steers, averaging between 1,100 pounds and 1,300
pounds with an individual steer weighing more than 100 pounds above or
below the average weight for the unit. No individual animal weighing
less than 1,050 pounds or more than 1,350 pounds is deliverable.\1\ The
weighing and grading of cattle delivered on the futures contract is
conducted by USDA graders. Delivery of live steers may be made at par
at CME-approved livestock yards in Syracuse, Kansas; Tulia, Texas;
Columbus, Nebraska; Dodge City, Kansas; Amarillo, Texas; Norfolk,
Nebraska; North Platte, Nebraska; Ogallala, Nebraska; Pratt, Kansas;
and Clovis, New Mexico.\2\ The futures contract's rules currently
specify an individual contract month speculative position limit of
3,300 contracts, and a spot month speculative position limit of 300
contracts that becomes effective at the close of business on the first
business day following the first Friday of the contract month.\3\
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\1\ Beginning with deliveries on the June 2003 contract month,
the average weight range will be between 1,100 pounds and 1,325
pounds, and no individual animal weighing greater than 1,375 pounds
will be deliverable.
\2\ At the buyer's option, cattle may be graded on a live basis
at the delivery stockyard, or on a carcass basis at a CME-approved
packing plant located within the originating stockyard's delivery
region.
\3\ The last trading day of an expiring contract month is the
last business day of the contract month. Delivery notices may be
issued beginning with the first business day following the first
Friday of the contact month.
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1. Deliverable Live Weight Range
The Exchange proposes to increase the maximum average deliverable
live weight to 1,350 pounds, and increase the maximum individual animal
live weight to 1,400 pounds, for cattle graded on a live weight basis.
In support of the proposal, the Exchange states, ``The increase is
recommended due to an evident trend in increased weights for slaughter
steers and will allow the contract to follow industry standards.''
2. Spot Month Speculative Position Limit
The Exchange proposes a ``scale-down'' spot month speculative
position limit of 450 contracts which would apply during the period
that begins with the close of business on the first business day
following the first Friday of the contact month and continues until the
close of business on the business day preceding the last five business
days of the contract month. The contract's existing 300-contract limit
would be applicable from the close of trading on the business day
preceding the last five trading days throughout the last day of
trading. Currently, there is a signed 300-contract limit applicable
throughout the spot month beginning with the close of business on the
first business day following the first Friday of the contract month
through the last day of trading.
In support of the proposal, the Exchange notes that a ``scale
down'' limit of 600 contract during the first part of the spot month
and a 300-contract limit thereafter had been eliminated in favor of a
single 300-contract spot month limit for the December 2002 through
October 2003 contract months as a result of deliverable supply
concerns. The Exchange believes that its subject proposals to widen the
range of deliverable live weights, add two new delivery locations, and
make other changes in the delivery process as discussed below, ``will
create a more efficient delivery process, attract more people who are
willing to deliver and increase the deliverable supply,'' thus
justifying the establishment of the ``scale down'' limit of 450
contracts during the first part of the spot month.
3. Delivery Locations
The Exchange proposes to add Guymon and Texhoma, Oklahoma as
delivery locations. In support of the proposal, the Exchange states
that these locations would facilitate delivery from the Oklahoma
panhandle. The Exchange further notes that Guymon had been a
[[Page 3233]]
delivery location until October 2002, when it was removed due to the
closing of the facility at this location. Recently, a new operator has
re-opened the Guymon facility and has expressed an interest in being
reinstated as a Live Cattle delivery point. In addition, the Texhoma
Livestock Auction in Texhoma, Oklahoma has expressed an interest to the
Exchange in becoming a Live Cattle delivery point.
4. Penalties for Delivery Obstructions
The Exchange proposes to penalize any seller who has not properly
pre-sorted cattle for grading, at a rate of $.015 per pound of live
cattle delivered per business day until proper delivery is made. In
addition, the Exchange proposes to penalize any buyer who disrupts the
delivery process, at a rate of $.015 per pound of live cattle
delivered. These penalties to the seller and buyer would be imposed at
the discretion of the USDA grader.
In support of the proposal, the Exchange indicates that the
potential imposition of penalties will increase the ``throughput'' of
the delivery system, by reducing the likelihood of impediments to the
efficient operation of the grading process resulting from the actions
of sellers and buyers. In this regard, the Exchange notes that failure
on the part of a deliverer to do a proper job of sorting the cattle
prior to delivery reduces the number of deliveries that can be
completed in a given time period, and takes unfair advantage of those
delivering shorts who properly sort their cattle. In addition,
disruptive behavior by receiving longs and/or their agents interferes
with the delivery process and reduces the number of deliveries that can
be completed in a given time period. The Exchange further believes that
the USDA grader is the logical party to determine whether, and to what
extent, a delivering short or receiving long has disrupted the delivery
process because it is the only unbiased, independent participant in the
process, and USDA personnel are present at every delivery. The Exchange
notes that the USDA has agreed to accept the responsibility for making
these determinations.
5. Prohibit Deliveries at Certain Locations on Auction Days
The Exchange proposes to give itself the discretion to prohibit
delivery at particular stockyards on those dates when an auction or
other activity that may interfere with futures delivery is taking place
at such stockyards. In support of the proposal, the Exchange notes that
all of the contract's existing delivery locations hold feeder cattle
auctions as their primary business, and that live cattle futures
deliveries compete for many of the same resources, such as scales,
pens, sorting alleys, etc. Although the Exchange historically has
relied on the operators of the delivery stockyards to discourage
deliveries on auction dates, is has proven difficult in practice for
operators to do so. As a result, deliveries made on auction days have
resulted in greater failure rates caused by auction-related operational
bottlenecks that prevent cattle from being presented in a timely manner
to the USDA grader.
The Exchange notes that it will determine in advance and ``black
out'' auction days in its electronic tender system, making it
impossible for a delivering short to submit a tender for delivery on
those dates. Further, the Exchange notes that this prohibition on
auction-day deliveries would apply generally to all locations, with the
exception of Amarillo and Dodge City, ``where there are multiple scales
and ample pens and sorting alleys.''
6. Uniform Grading and Documentation Fees
The Exchange is proposing to establish and set annually a uniform
grading and documentation fee per delivery unit, which will be charged
to sellers for each contract unit of cattle delivered on the futures
contract. The fee will be applicable at all delivery locations.
Currently, the Exchange passes through to the seller the actual costs
billed to it by the USDA for grading services. The Exchange notes that
USDA grading fees vary widely by location, ranging from $42 to $484,
depending on the travel costs incurred by USDA to service a particular
location. The Exchange believes that this variability has ``introduced
a large degree of uncertainty into the delivery process for those
planning to deliver at locations which require USDA travel.'' The
Exchange further notes that the USDA is intending to propose a uniform
flat fee of $100 per delivery unit for CME live graded deliveries.
7. Standing Without Water
The Exchange proposes to eliminate the requirement that live-graded
delivery cattle stand without water during the time interval between 9
a.m. and the time of grading. Cattle will continue to be denied access
to feed during this period.
8. Price Differentials for Heavy Carcasses
The Exchange proposes to provide for the application of price
differentials to the delivery of steer carcasses weighing between 950
and 1,000 pounds based on price data from USDA's National Weekly Direct
Slaughter Cattle--Premiums and Discounts report, which is used under
existing rules for establishing a price differential for cattle
weighing between 900 and 950 pounds. Currently, cattle weighing between
950 and 1,000 pounds are discounted at a rate equal to 20% of the final
settlement price. In support of the proposal, the Exchange states that
the proposal ``would allow more precise discounting of carcasses in
this weight bracket.''
The Division is requesting comment on the proposals. Copies of the
Exchange's proposed amendments will be available for inspection at the
Office of the Secretariat, Commodity Futures Trading Commission. Three
Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. Copies of
the proposed amendments can also be obtained through the Office of the
Secretariat by mail at the above address or by phone at (202) 418-5100.
Other materials submitted by the CME in support of the request for
approval may be available upon request pursuant to the Freedom of
Information Act (5 U.S.C. 552) and the Commission's regulations there
under (17 CFR Part 145 (2002)), except to the extent they are entitled
to confidential treatment as set forth in 17 CFR 145.5 and 145.9.
Requests for copies of such materials should be made to the 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 pertaining to the proposed amendments or with respect to
other materials submitted by the CME should send such comments to Jean
A. Webb. Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581 by the
specified date.
Dated: Issued in Washington, DC on January 17, 2003.
Michael Gorham,
Director.
[FR Doc. 03-1534 Filed 1-22-03; 8:45 am]
BILLING CODE 6351-01-M