Release: #4070-97

For Release: October 29, 1997

CFTC PROPOSES PILOT PROGRAM FOR AGRICULTURAL TRADE OPTIONS

WASHINGTON -- The Commodity Futures Trading Commission (Commission) announced today that it has approved proposed rules establishing a three-year pilot program to permit the offer and sale of trade options on certain agricultural commodities. Trade options are off-exchange options entered into by counterparties within the categories of commercial users specified in the proposed rules, where the options are used for business-related purposes. The proposed pilot program would permit the offer and sale of off-exchange options under specified conditions on certain agricultural commodities for the first time since 1936. The proposed rule will be published in the Federal Register for a thirty-day public comment period.

As proposed, entities which handle the commodity in normal cash market channels would be able to offer to buy or sell commodity options with other commercial counterparties for business-related uses. These options would require physical delivery of the commodity if exercised and could not be repurchased, resold or otherwise canceled prior to the expiration or exercise of the option. Certain restrictions would be placed on the types of options agricultural producers could enter into. Entities offering to buy or sell the options would be required to become registered as agricultural trade option merchants, to report to the Commission on their transactions, to provide their customers with disclosure statements and to safeguard their customers' premiums. As a condition of registration, such entities would be required to meet a financial requirement, successfully complete a proficiency exam and periodically attend ethics training. The Commission is also proposing to exempt from the prohibition and the other proposed rules described above individuals or entities which have a net worth in excess of $10,000,000. Finally, the Commission is also proposing to remove the prohibition on the offer and sale of agricultural options for physicals on designated exchanges.

Commission staff will discuss the proposed pilot program today at a meeting of the Commission's Agricultural Advisory Committee, chaired by Commissioner Joseph B. Dial. The text of the rules governing the proposed pilot program also will be made available at the meeting. The Agricultural Advisory Committee is an advisory committee of the Commission charged with providing the Commission advice regarding matters of interest to the agricultural community.

Comments on the proposed pilot program should be sent to Jean A. Webb, Secretary of the Commission, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington D.C. 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 "Agricultural Trade Options." A copy of the Commission's Notice of Proposed Rulemaking may also be obtained by contacting the Commission's Office of Public Affairs, Three Lafayette Center, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100. The Commission also intends to make the proposal available in the near future on its Website homepage at www.cftc.gov.