[Federal Register: February 1, 2000 (Volume 65, Number 21)]
[Notices]
[Page 4805-4807]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01fe00-34]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
RIN 3038-ZA07
Application of the Merchants' Exchange of St. Louis, L.L.C. for
Designation as a Contract Market in the Illinois Waterway and St. Louis
Harbor Barge Rate Futures Contracts
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of availability of the terms and conditions of proposed
commodity futures contracts.
-----------------------------------------------------------------------
SUMMARY: The Merchants' Exchange of St. Louis. L.L.C. (``MESL'' or
``Exchange'') has applied for designation as a contract market for the
automated trading of deliverable Illinois Waterway and St. Louis Harbor
barge rate futures contracts on an electronic trading system (``MESL
System'').
The Exchange has not previously been approved by the Commodity
Futures Trading Commission (``Commission'') as a contract market in any
commodity. Accordingly, in addition to the terms and conditions of the
two proposed futures contracts, MESL has submitted to the Commission a
proposed trade-matching algorithm; proposed rules pertaining to MESL
governance, disciplinary and arbitration procedures, trading standards
and recordkeeping requirements; and various other materials to meet the
requirements for a board of trade seeking initial designation as a
contract market.
MESL has reached a preliminary agreement with, and is in the
process of negotiating a definitive agreement with, the Board of Trade
Clearing Corporation (``BOTCC'') to provide all clearance and
settlement functions. The National Futures Association (``NFA'') would
perform several of MESL's required regulatory functions.
Acting pursuant to the authority delegated by Commission Regulation
140.96, the Division of Economic Analysis and the Division of Trading
[[Page 4806]]
and Markets have determined to publish the Exchange's proposal for
public comment. The Divisions believe that publication of the proposal
for comment at this time is in the public interest, will assist the
Commission in considering the views of interested persons, and is
consistent with the Commodity Exchange Act. The Divisions seek comment
regarding all aspects of MESL's application and addressing any issues
commenters believe the Commission should consider.
DATES: Comments must be received on or before April 3, 2000.
FOR FURTHER INFORMATION CONTACT: With respect to questions about the
terms and conditions of MESL's proposed futures contracts, please
contact Frederick V. Linse of the Division of Economic Analysis,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW, Washington, DC 20581: telephone number (202) 418-5273;
facsimile number (202) 418-5527; or electronic mail: [email protected].
With respect to MESL's other proposed rules, please contact Rachel F.
Berdansky of the Division of Trading and Markets at the same address;
telephone number: (202) 418-5429; facsimile number (202) 418-5536; or
electronic mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Description of Proposal
By letter dated January 7, 2000, and received January 12, 2000,
MESL, a Missouri for-profit limited liability company, has applied to
the Commission for designation as a contract market for the automated
trading of deliverable Illinois Waterway and St. Louis Harbor barge
rate futures contracts. Since December 1998, MESL has been operating an
inter-dealer exchange for barge freight in the cash market as the
successor to the Merchants' Exchange of St. Louis, a not-for-profit
entity.\1\ Neither entity has previously been approved as a contract
market in any commodity. Thus, in addition to the terms and conditions
of the two proposed futures contracts, MESL has submitted, among other
things, proposed trade-matching algorithm procedures and rules
pertaining to MESL governance, disciplinary and arbitration procedures,
trading standards, and recordkeeping requirements.
---------------------------------------------------------------------------
\1\ The Merchants' Exchange of St. Louis was organized in 1836
for the purpose of trading cash and futures products, including
barge freight, but ceased trading futures contracts prior to the
creation of the Commission.
---------------------------------------------------------------------------
Pursuant to the Missouri Limited Liability Company Act, MESL is
wholly-owned by its ``members.'' Although MESL's members/owners
(``Owners'') hold all equity interest and voting rights, MESL System
trading privileges would not convey with MESL membership. \2\ Only
persons approved by MESL would be granted trading privileges
(collectively referred to as ``Trading Privilege Holders'' (``TPHs'')).
MESL's Owners would not be prohibited from obtaining trading
privileges, but would be required to complete the standard TPH
application and approval process. \3\ MESL also would require that
every TPH applicant either be a clearing member, have a clearing
arrangement with a clearing member, or have an account with a firm that
has a relationship with a clearing member.
---------------------------------------------------------------------------
\2\ Each MESL Owner has executed the MESL Operating Agreement. A
limited liability company's operating agreement is comparable to a
partnership agreement for a limited partnership or the combination
of by-laws and a shareholders' agreement of a corporation. All
individuals or entities that become Owners in the future also would
be required to sign the MESL Operating Agreement.
\3\ The Exchange would define ``person'' to include a natural
person, association, partnership, limited liability company, trust,
or corporation. For purposes of the Exchange's application for
contract market designation and its proposed rules, the term
``members'' constitutes any person (including Owners) approved as a
TPH. In this regard, an Owner that is not a TPH would not be
considered a member.
---------------------------------------------------------------------------
The Exchange would be governed by a five-person Board of Managers
(``Board''), which would include at least one public Manager, appointed
jointly by a vote of MESL's Owners. The Owners also would elect one of
the Managers to serve as Chairman. Among other things, the Board would
elect MESL's officers and approve TPHs.\4\ Day-to-day operations would
be managed by an Executive Committee comprised of MESL's Chairman and
President.
---------------------------------------------------------------------------
\4\ The Board's other responsibilities would include setting
compensation for officers and employees, setting transaction fees,
and approving any amendments to MESL's Operating Agreement or rule
revisions.
---------------------------------------------------------------------------
MESL proposes to trade each of its two contracts from 8:30 a.m. to
4 p.m., Central Time, on each business day. The contracts would trade
over the MESL System, an automated trading system licensed by Exchange
Cubed, LLC, a software and systems development company.\5\ Under the
proposal, TPHs would use their own computers to access the MESL System
over a proprietary network. TPHs or their authorized employees would be
required to input into the MESL System the price, quantity, commodity,
contract month, and the account designation for each order.\6\ If a
customer order could not by its terms be immediately entered into the
MESL System, the TPH or AT receiving the order would be required to
prepare a written order ticket that included the time of receipt, date,
account designation, and all other required information. The TPH or AT
would be required to enter the order as soon as possible.
---------------------------------------------------------------------------
\5\ MESL expects to collect a transaction fee for each trade
executed on the MESL System.
\6\ Those TPHs that are either a Futures Commission Merchant,
Introducing Broker, or Commodity Trading Advisor, would be permitted
to authorize employees to exercise their trading privileges. These
employees are referred to as Authorized Traders (``ATs''). ATs would
be required to sign an agreement consenting to be bound by MESL's
rules.
---------------------------------------------------------------------------
The MESL System would accept the entry of any market order, limit
order, stop limit order or market-if-touched order and would permit
contingencies such as day-trade orders and good-til-cancelled orders.
These orders would be executed pursuant to a trade-matching algorithm
that would match orders on the basis of price first and time second.
Upon execution of a transaction, a digital confirmation would be
provided to the submitting TPH. Within approximately thirty minutes of
the execution of each trade, the Exchange represents that the MESL
System would transmit matched trade data to the BOTCC. Trade data for
each trade would be made immediately available to the appropriate
clearing member for review. The clearing member would be required to
accept or challenge the trade within thirty-minutes of receipt from
MESL.
MESL also would permit transactions involving the exchange of
futures for physicals (``EFP''). Specifically, MESL would allow a bona-
fide EFP of any size to be entered into at a price mutually agreed upon
by the two transacting parties at any time during a 24-hour trading
day. EFPs would be cleared by the BOTCC in the regular manner and would
be designated as a noncompetitive transaction in the relevant records.
MESL expects to contract with NFA to perform several of MESL's
required regulatory services. These services would encompass reviewing
TPH applications and conducting background checks, and operating MESL's
arbitration program and portions of its disciplinary program.\7\
[[Page 4807]]
MESL also expects to contract with NFA to operate its trade practice
surveillance program. This responsibility would entail conducting
investigations and prosecuting the resulting disciplinary actions.
---------------------------------------------------------------------------
\7\ The Exchange's proposed disciplinary rules are substantially
the same as NFA's disciplinary rules. The Exchange anticipates that
its Business Conduct Committee (``BCC'') and Hearing Committee would
consist of NFA's BCC and Hearing Committee, respectively, plus one
Exchange representative on each committee. Appeals would be heard by
the Exchange's Executive Committee.
---------------------------------------------------------------------------
II. Request for Comments
Any person interested in submitting written data, views, or
arguments on the proposal to designate MESL should submit their views
and comments by the specified date 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 facsimile number (202) 418-5521, or by
electronic mail to [email protected]. The Divisions seek comment on
all aspects of MESL's application for designation as a new contract
market. Reference should be made to MESL's application for designation
as a contract market in Illinois Waterway and St. Louis Harbor barge
rate futures contracts. Copies of each contract's proposed terms and
conditions are available for inspection at the Office of the
Secretariat at the above address. Copies also may be obtained through
the Office of the Secretariat at the above address or by telephoning
(202) 418-5100.
Other materials submitted by MESL may be available upon request
pursuant to the Freedom of Information Act (5 U.S.C. 552), except to
the extent that they are entitled to confidential treatment pursuant to
17 CFR 145.5 or 145.9. Requests for copies of such materials should be
made to the Freedom of Information, Privacy and Sunshine Act compliance
staff of the Office of the Secretariat at the Commission headquarters
in accordance with 17 CFR 145.7 and 145.8.
Issued in Washington, DC, on January 21, 2000.
Alan L. Seifert,
Deputy Director.
[FR Doc. 00-2116 Filed 1-31-00; 8:45 am]
BILLING CODE 6351-01-U
======== RETURN TO INDEX ========