[Federal Register: July 8, 1997 (Volume 62, Number 130)] [Notices] [Page 36499-36501] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr08jy97-35] ======================================================================= ----------------------------------------------------------------------- COMMODITY FUTURES TRADING COMMISSION. Chicago Board of Trade Futures Contract in Wheat; Request for Public Comment on Delivery Point Specifications AGENCY: Commodity Futures Trading Commission. ACTION: Request for Public Comment on the Delivery Specifications of the Chicago Board of Trade's Wheat Futures Contract. ----------------------------------------------------------------------- SUMMARY: The Commodity Futures Trading Commission (``Commission''), by letter dated December 19, 1996, issued a request to the Board of Trade of the City of Chicago (``CBT'') to undertake a study of the delivery specifications of its wheat futures contract and to submit its findings to the Commission by April 18, 1997, 120 days from the date of the Commission's request. By letter dated April 18, 1997, the CBT responded by providing a status report to the Commission of its actions. In that response, the CBT reported that the CBT would refrain from acting on the recommendations of the special task force which it had appointed and would instead conduct market research to determine whether a broader review of the contract not limited to its delivery terms should be undertaken. [[Page 36500]] The Commission is seeking public comment on various issues relating to the current delivery specifications of the wheat futures contract. The Commission has determined that it is in the public interest to do so, and that such publication will assist the Commission in considering the views of interested persons, and is consistent with the purposes of the Commodity Exchange Act. DATES: Comment must be received by August 22, 1997. ADDRESSES: Comments should be mailed to the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, attention: Office of the Secretariat; transmitted by facsimile at (202) 418-5521; or transmitted electronically to [[email protected]]. Reference should be made to ``Wheat Delivery Points.'' FOR FURTHER INFORMATION CONTACT: John Mielke, Acting Director, or Paul M. Architzel, Chief Counsel, Division of Economic Analysis, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5260, or electronically, Mr. Architzel at [[email protected]]. SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission (``Commission''), by letter dated December 19, 1996, notified the Board of Trade of the City of Chicago (``CBT''), under Section 5a(a)(10) of the Act (``Act''), 7 U.S.C. Sec. 7a(a)(10), that the delivery terms of the CBT corn and soybean futures contracts no longer accomplish the statutory objectives of ``permit[ting] the delivery of any commodity * * * at such point or points and at such quality and locational price differentials as will tend to prevent or diminish price manipulation, market congestion, or the abnormal movement of such commodity in interstate commerce.'' (December notification). In addition, the Commission instructed the CBT to consider immediately the adequacy of the delivery specifications of its wheat futures contract.\1\ The Commission directed the CBT to complete its consideration of, and to report to the Commission on its consideration of them, within 120 days of the notice--April 18, 1997. --------------------------------------------------------------------------- \1\ The CBT's wheat futures contract provides for the delivery of various grades and classes of wheat, but traditionally the futures contract has priced No. 2 soft red winter wheat. Delivery is made by the transfer of warehouse receipts representing wheat in store at regular warehouses. Delivery may be made in Chicago at par, in Toledo at a discount of 2 cents per bushel, and in St. Louis at a premium of 8 cents per bushel. --------------------------------------------------------------------------- The CBT responded by way of a status report. Letter dated April 18, 1997, to Chairperson Brooksley Born from Patrick H. Arbor. Specifically, it reported that although a Task Force appointed by the Board of Directors had recommended certain changes to the delivery terms of the wheat futures contract, the Board had decided to refrain from acting on those recommendations at this time. The CBT stated that instead it would conduct a market research effort to determine whether a broader review of the contract should be undertaken. In a subsequent letter dated April 30, 1997, to Chairperson Born, Mr. Arbor maintained that, ``as the Commission is aware, the declining warehouse capacity in Chicago has not had a material impact on the CBOT's wheat contract given the active cash markets in Toledo and St. Louis, the contract's other delivery points.'' Moreover, the CBT noted that * * * ``the operation of the CBOT's wheat contract has not been the focus of any `comprehensive studies' in recent years, nor has an even arguable consensus emerged as to the existence or identity of a problem. Finally, the CBT protested the Commission's plan to seek public comment on these issues, questioning whether the ``Commission plan[s] routinely to subject other contracts at the CBOT or other exchanges to a comment process or public poll without having substantiated any flaw in such contracts'' and maintaining that ``design and delivery issues are subject to potentially limitless debate * * *.'' The December notification relating to the delivery specifications of the corn and soybean futures contracts was based on: (1) The continuing diminution of the role of terminal markets in the cash market for grain; (2) the increasing shift of the locus of the main channels of commodity flows away from the delivery points on the contracts, particularly the par-delivery point of Chicago; (3) the continuing decline in cash market activity generally at the contracts' delivery points, particularly Chicago; and (4) the serious, precipitous drop in regular warehouse storage capacity at the Chicago delivery point over the past fourteen months. The delivery specifications for the CBT wheat futures contract are also subject to many of the same trends that have affected adversely the corn and soybean contracts. For example, the closure of terminal elevators at Chicago, the contract's par delivery point, affects delivery capacity for wheat as surely as for corn and soybean futures.\2\ --------------------------------------------------------------------------- \2\ In limiting the effect of the December notification under section 5a(a)(10) of the Act to the CBT corn and soybean futures contract, the Commission noted that ``the CBT wheat futures contract [specifications] are also subject to many of the same trends which have affected adversely the corn and soybean contracts.'' The Commission did not include the wheat contract in the section 5a(a)(10) December notification on the basis of any determination that its terms meet the Act's requirements, but rather to provide the CBT a fuller opportunity to consider the issues related to wheat before making any determination of the issue. The Commission believed this was appropriate in light of the CBT's full consideration of the issues relating to its corn and soybean contracts during the previous year. 61 FR 67999. --------------------------------------------------------------------------- Contrary to the CBT's contention that the wheat futures contract has not been focus of any comprehensive studies in recent years, the scope of several of the 1991 studies that were summarized in the December notification included the delivery terms of the CBT wheat contract, as well as the corn and soybean contracts. Indeed, the Commission's study specifically analyzed possible revisions to delivery specifications for the CBT's wheat contract, suggesting consideration of a number of possible alternatives to address the problems in deliverable supplies plainly evident by the time of the 1991 study. These included: (1) An expanded Toledo delivery area; (2) shipping certificate deliveries in an area focused near the confluence of the Ohio and Mississippi rivers; or (3) a shipping certificate contract deliverable to lower Mississippi River export elevators. In addition, an October 11, 1995, letter from Commission Chairwoman Mary Schapiro to the CBT expressing the Commission's concerns regarding the adequacy of the delivery provisions in light of the recent closure of Chicago elevators specifically included reference to the wheat contract and urged the CBT to take remedial action to correct the long-term problems in these contracts, including the wheat futures contract. Although the Commission previously requested comment on the wheat contract in connection with its publication of the December notification and request for public comment, most commenters limited the focus of their comments to the corn and soybean futures contracts, the subject of the Section 5a(a)(10) notification. In view of the CBT's determination to continue its research and study of these matters, the Commission has concluded that public comment on these issues, including potential changes to the wheat contract's delivery specifications, may facilitate their consideration. It also will assist the Commission in its consideration of the concerns identified [[Page 36501]] in the December notification relating to the CBT wheat futures contract. The Commission is of the view that the public has an important role to fulfill and a critical interest in a full airing of these issues. Accordingly, the Commission is hereby separately requesting written data and views from interested members of the public relating to the CBT wheat contract. The submission of data relating to cash market flows of No. 2 soft red winter wheat, relevant locational price differentials, and other relevant economic evidence would be especially useful. Commenters are specifically requested to address the following issues: 1. Does a problem exist with regard to the current delivery specifications of the CBT wheat contract? If so, to what extent is the problem a lack of adequate deliverable supplies at Chicago, Toledo, and St. Louis? With respect to Toledo and St. Louis, are the differentials on the contract set appropriately to reflect cash market price differentials? What is the economic deliverable capacity at St. Louis in light of the through-put nature of the facilities located there? 2. To what extent do the current CBT delivery specifications for wheat reflect flows of wheat in the cash market? To the extent that the delivery terms of the futures contract differ from the wheat flows in the cash market, does this have any detrimental impact on the trading of the wheat futures contract or on the cash market for wheat? 3. What is the likely effect of a failure to modify the current delivery terms of the contract? 4. What alternative delivery specifications are available to increase deliverable supplies on the contract? In this respect, commenters are requested to address the following questions, supplying, to the extent available, economic data or studies in support of their conclusions: a. Given the declining role of Chicago as a cash market for wheat, should it be retained as a delivery point on the futures contract? b. What are the advantages and disadvantages of expanding the Toledo, Ohio delivery point to encompass off-water elevators in neighboring counties? c. What are the advantages and disadvantages of expanding the St. Louis, Missouri delivery point to encompass river stations and off- water elevators in neighboring counties? d. What are the advantages and disadvantages of permitting delivery at St. Louis via shipping certificates, rather than warehouse receipts? Should such shipping certificates be backed by warehouse receipts at or near that location or by financial guarantees of performance? e. If delivery at St. Louis by shipping certificate is advisable, should other delivery points on the contract also provide for delivery by shipping certificate? Is consistency of delivery instrument among delivery points necessary or desirable? What is the likely effect of lack of consistency in the type of delivery instrument for different delivery points? f. What are the advantages and disadvantages of providing for delivery via shipping certificates at elevators located: (i) On the Mississippi River located between St. Louis and Memphis or (ii) on the Mississippi River between St. Louis and Cairo and (iii) on the Ohio River between Cairo and Louisville, Kentucky? g. What are the advantages and disadvantages of specifying delivery to lower Mississippi River export elevators? 5. Is there a single location, or a limited number of locations, that offer either sufficient stocks or receive sufficient flows of one class of wheat adequate to support futures trading and to tend to prevent or diminish price manipulation, market congestion or the abnormal movement of such commodity in interstate commerce? Issued in Washington, D.C., this 1st day of July, 1997 by the Commodity Futures Trading Commission. Jean A. Webb, Secretary of the Commission. [FR Doc. 97-17721 Filed 7-7-97; 8:45 am] BILLING CODE 6351-01-P
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