[Federal Register: March 20, 1998 (Volume 63, Number 54)]
[Notices]
[Page 13638-13640]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20mr98-74]

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COMMODITY FUTURES TRADING COMMISSION


Proposed Amendments to the Price Limit and Trading Halt
Provisions in Domestic Stock Index Futures Contracts

AGENCY: Commodity Futures Trading Commission

ACTION: Notice of availability of proposed amendments to the price
limit and trading halt provisions in domestic stock index futures
contracts listed on the Chicago Mercantile Exchange, Chicago Board of
Trade, Kansas City Board of Trade, and New York Futures Exchange.

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SUMMARY: The Chicago Mercantile Exchange (CME), Chicago Board of Trade
(CBOT), Kansas City Board of Trade (KCBT), and New York Futures
Exchange (NYFE) have submitted proposals to modify existing "circuit
breaker" and related price limit provisions in those exchanges'
domestic stock index futures contracts. The Director of the Division of
Economic Analysis (Division) of the Commission, acting pursuant to the
authority delegated by Commission Regulation 140.96, has determined
that publication of the proposals for comment is in the public
interest, will assist the Commission in considering the views of
interested persons, and is consistent with the purposes of the
Commodity Exchange Act.

DATE: Comments must be received on or before April 6, 1998.


[[Page 13639]]


ADDRESS: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, 1155
21st Street NW, Washington, DC 20581. In addition, comments may be sent
by facsimile transmission to facsimile number (202) 418-5521 or by
electronic mail to [email protected]. Reference should be made to the
proposed amendments to the price limit and trading halt provisions of
domestic stock index futures and futures option contracts.

FOR FURTHER INFORMATION CONTACT: Please contact Michael Penick of the
Division of Economic Analysis, Commodity Futures Trading Commission,
1155 21st Street NW, Washington, DC 20581, telephone 202-418-5279.
Facsimile number: (202) 418-5527. Electronic mail: [email protected].

SUPPLEMENTARY INFORMATION: The CME, CBOT, KCBT and NYFE proposed
changes to the price limit and trading halt provisions, including
circuit breaker trigger levels, for their domestic stock index futures
contracts. The submissions were made to coordinate with the proposal
from the New York Stock Exchange (NYSE) to revise its circuit breaker
rules. The NYSE proposal would establish three "circuit breaker"
trading halt triggers that will be reset quarterly such that the levels
are equivalent to 10%, 20%, and 30% of the average closing level of the
Dow Jones Industrial Average (DJIA) for the calendar month preceding
that quarter. These triggers would replace the current fixed 350-point
and 550-point DJIA triggers. The NYSE also proposes to increase the
duration of each circuit breaker trading halt.1 The NYSE
proposal is currently under review by the Securities and Exchange
Commission (SEC). Notice of that proposal was given in the Federal
Register on February 23, 1998 (63 FR 9034).
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    \1\ Under current NYSE rules, the 350-point trading halt
generally lasts one half hour and the 550-point trading halt
generally lasts one hour or until the end of the trading day.
    Under the NYSE proposal, the halt for a 10% decline generally
will be one hour. However, if the 10% trigger value is reached at or
after 2:00 p.m. but before 2:30 p.m., the halt would be one half
hour, while if it occurs at or after 2:30 p.m. a 10% decline would
not trigger a halt. The halt for a 20% decline generally will be two
hours. However, if the 20% trigger value is reached at or after 1:00
p.m. but before 2:00 p.m., the halt would be one hour, while if it
occurs at or after 2:00 p.m., trading would halt for the rest of the
day. Finally, if the market declines by 30% at any time, trading
will be halted for the remainder of the day.
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    The CME proposes that, for each of its domestic stock index
contracts, there be circuit breaker trading halts coordinated with the
NYSE trading halts. Consistent with the quarterly adjustment method
proposed by the NYSE, beginning on the first day of each quarter, the
CME will reset its circuit breaker price limits to 10% and 20% of the
average daily closing price in the current primary futures contract
during the preceding calendar month. The 10% limit will be rounded down
to the nearest multiple of 10 Index points, and the 20% limit will be
twice the 10% limit.2 Following each of the two circuit
breaker trading halts, trading on the CME would resume after the NYSE
reopens and 50% of the stocks in the S&P 500 (measured by
capitalization) have begun to trade. The price limit at the 20% circuit
breaker level will remain in effect when trading resumes following a
20% circuit breaker trading halt.
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    \2\ Using this calculation method, the CME's circuit breaker
levels typically will be slightly more restrictive than the
comparable circuit breaker trigger levels on the NYSE which are
based on the DJIA.
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    The CME further proposes that, on the day after futures trading
either ended limit-offered or was halted at the 20% circuit breaker
limit, the 10% price decline limit on that next day would be treated as
a "speed bump" (discussed below) rather than a circuit breaker price
limit. This is because the S&P 500 futures price could be up to 10
percentage points above the cash index which, as noted, could have
declined as much as 30 percent under proposed NYSE rules. Under this
proposal, on such next day, the futures contracts would be halted if
the NYSE halted, and reopened as described above, with the 20% limit in
place after such reopening.
    The CME also proposes to increase its intermediate price decline
limits (speed bumps), generally to 2.5% and 5% of the underlying index,
from the current fixed point levels. 3 Those speed bump
levels will be calculated quarterly. Intermediate price decline limits
are in effect for ten minutes after the primary futures contract is
limit offered. If the futures is limit offered at the end of that 10
minute period, there would be a two minute trading halt, after which
the next price limit would be in effect. The 2.5% price decline limit
also will be the price limit for the overnight Globex session, both
above and below the regular trading hours settlement price.
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    \3\  The current speed bumps for the actively traded S&P 500
futures contract are 15 and 30 points or about 1.5% and 3.0% of the
S&P 500 index.
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    Finally, the CME proposes to eliminate rule 831 which provides that
daily variation payments are based on the implied market price when the
cash index is lower than the futures price due to price limits on the
futures contract.
    The KCBT proposes circuit breaker and price limit rules to its
stock index contracts that generally are coordinated with the proposed
NYSE rules and generally are similar to those of the CME. However,
under that proposal, the KCBT would calculate, on a daily basis, speed
bump price limits of 2.5% and 5.0% of the previous day's settlement
price, and circuit breaker price limits of 10% and 20% of the previous
day's settlement price. Trading would halt whenever either of the two
lead futures contract months is locked limit down and trading halts on
the NYSE. The CBOT proposes price limits and trading halts for its DJIA
futures contract at the same trigger levels as proposed by the NYSE.
Consistent with current CBOT rules, the CBOT's proposal does not
include speed bump price limits prior to the first circuit breaker
price limit. The NYFE proposes circuit breaker and price limit rules
for its domestic stock index contracts at the same trigger levels as
proposed by the NYSE. In addition, the NYFE proposes to delete its
speed bump price limits prior to the first circuit breaker price limit.
    Copies of the proposed amendments will be available for inspection
at the Office of the Secretariat, Commodity Futures Trading Commission,
1155 21st Street, N.W., Washington, D.C. 20581. Copies of the terms and
conditions can be obtained through the Office of the Secretariat by
mail at the above address or by phone at (202) 418-5097.
    Other materials submitted by the CME, CBOT, KCBT, and NYFE in
support of the proposals may be available upon request pursuant to the
Freedom of Information Act (5 U.S.C. 552) and the Commission's
regulations thereunder (17 C.F.R. Part 145 (1987)), except to the
extent they are entitled to confidential treatment as set forth in 17
C.F.R. 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 the Secretariat at the Commission's headquarters in
accordance with 17 C.F.R. 145.7 and 145.8.
    Any person interested in submitting written data, views, or
arguments on the proposed amendments, or with respect to other
materials submitted by the CME, CBOT, KCBT, and NYFE should send such
comments to Jean A. Webb, Secretary, Commodity Futures Trading
Commission, 1155 21st Street, NW, Washington, DC 20581 by the specified
date.


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    Issued in Washington, DC, on March 12, 1998.
John Mielke,
Acting Director.
[FR Doc. 98-7244 Filed 3-19-98; 8:45 am]
BILLING CODE 6351-01-P

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