[Federal Register: February 1, 1999 (Volume 64, Number 20)]
[Notices]
[Page 4845-4847]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01fe99-40]
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COMMODITY FUTURES TRADING COMMISSION
Chicago Board of Trade Futures Contracts in Corn and Soybeans;
Order Approving Proposed Rules and Amending Orders of May 7, 1998, and
November 7, 1997
AGENCY: Commodity Futures Trading Commission.
ACTION: Final order to the Chicago Board of Trade.
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SUMMARY: The Commodity Futures Trading Commission (Commission), on
January 25, 1999, issued an Order to the Board of Trade of the City of
Chicago (CBT) under sections 5a(a)(12) and 5a(a)(10) of the Commodity
Exchange Act (Act), 7 U.S.C. 7a(a)(12) and (10), approving amendments
to the CBT's corn and soybean futures contracts and amending the
Commission's Orders under section 5a(a)(10) of the Act of November 7,
1997, and May 7, 1998, to effectuate the approved rule amendments.
On January 25, 1999, the Commission approved for the CBT corn and
soybean futures contracts, beginning on January 3, 2000: (1) Deletion
of provisions relating to in-loading of the commodities at regular
warehouses; (2) rules extending a preference for load-out by regular
warehouse or shipping station operators of deliveries on futures
contracts over their cash commitments until meeting their daily load-
out requirement that is currently in effect for delivery by barge to
other modes of transportation; and (3) rules requiring regular shipping
stations, at a minimum, to load at the highest loading rate applicable
for the commodities in a loading line-up which includes both wheat and
corn or soybeans or both oats and corn or soybeans. The Commission, by
its Order, amended its Orders of November 7, 1997, and May 7, 1998, to
effectuate the above approvals relating to the CBT corn and soybean
futures contracts.
The Commission has determined that publication of this Order is in
the public interest, will provide the public with notice of its action,
and is consistent with the purposes of the Act.
DATES: This Order became effective on January 25, 1999.
ADDRESSES: Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW, Washington, DC 20581.
FOR FURTHER INFORMATION CONTACT: John Mielke, Acting Director, or Paul
Architzel, Chief Counsel, Division of Economic Analysis, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW, Washington, DC 20581, (202) 418-5260, or electronically, Mr.
Architzel at [email protected].
SUPPLEMENTARY INFORMATION: The Commission, on January 25, 1999, issued
an Order to the CBT approving amendments to the CBT's corn and soybean
futures contracts under sections 5a(a)(12) and 5a(a)(10) of the Act and
amending the Commission's Orders under section 5a(a)(10) of the Act of
November 7, 1997, and May 7, 1998, to effectuate the approved rule
amendments.
The text of the Commission's Order is as follows:
In the Matter of the Amendment: of the Terms and Conditions of
the Chicago Board of Trade Corn and Soybean Futures Contracts.
Order of the Commodity Futures Trading Commission Approving Proposed
Amendments to the Board of Trade of the City of Chicago Corn and
Soybean Futures Contracts and Amending Commission Orders of May 7,
1998, and November 7, 1997.
The Commodity Futures Trading Commission (Commission) hereby
approves under sections 5a(a)(12) and 5a(a)(10) of the Commodity
Exchange Act (Act), 7 U.S.C. 7a(a)(12) and (10), amendments to the
Board of Trade of the City of Chicago's (CBT) corn and soybean futures
contracts submitted by the CBT for Commission approval on October 22,
1998, and January 20, 1999, and amends the Commission's Orders of May
7, 1998, and November 7, 1997, under section 5a(a)(10) of the Act,
making all changes necessary effect the above approval. Specifically,
the Commission approves for the CBT corn and soybean futures contracts,
beginning on January 3, 2000:
[[Page 4846]]
(1) Deletion of provisions relating to in-loading of the
commodities at regular Chicago shipping stations;
(2) Rules extending a preference for load-out by regular shipping
station operators of commodity for futures delivery over their cash
commitments until meeting their daily load-out requirement that is
currently in effect for Chicago delivery by barge to delivery by other
modes of transportation; and,
(3) Rules requiring shipping stations, at a minimum, to load at the
highest loading rate applicable for the commodities in a loading line-
up which includes both wheat and corn or soybeans or both oats and corn
or soybeans.
I. Background
The CBT corn and soybean futures contracts were the subject of a
notification and proceeding under section 5a(a)(10) of the Act. Under
that proceeding, the Commission on November 7, 1997, issued an Order to
the CBT amending the CBT's corn and soybean futures contracts, 62 FR
60831 (November 13, 1997) (section 5a(a)(10) Order), and on May 7,
1998, the Commission issued a second, amending Order designating new
CBT corn and soybean futures contracts with revised contract terms. 63
FR 26575 (May 13, 1998) (Amending Order) (together, ``section 5a(a)(10)
Orders'').
The CBT on October 21, 1998, and January 20, 1999, submitted to the
Commission for its review proposed amendments to its corn and soybean
futures contracts. The Commission on November 25, 1998, requested
public comment on the exchange rule amendments. 63 FR 65175. The
Commission's request for public comment noted that, to the extent these
proposed rule amendments differ from the provisions of the Commission's
Order of May 7, 1998, the CBT's requested approval also constituted a
request to the Commission to amend its Order and that the request for
comment also constituted notice of the proposed amendment of the
Commission's Order consistent with the proposed rule amendments.\1\ Id.
at 65176. It also raised a number of specific issues for response,
including whether the proposed load-out preference was consistent with
cash market practice and, if not, to what extent the proposal would
limit deliverable supplies on the contracts. The Commission also
requested comment on the likely effect on deliverable supplies which
might result from the increasing concentration of control over delivery
facilities.\2\ 63 FR 65175, 65177 (November 25, 1998).
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\1\ The CBT also proposed amendments to its wheat and oats
futures contracts in its October 22 and January 20 submissions.
Those contracts are not subject to Commission section 5a(a)(10)
Orders and are being reviewed separately for Commission approval
under section 5a(a)(12) of the Act.
\2\ Five commenters--the CBT, a flour miller, two grain
merchants and an association--responded. However, none of the
commenters specifically addressed issues related to the corn and
soybean futures markets. Instead their comments were addressed to
associated rules applicable to the CBT wheat and oats futures
contracts.
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II. The CBT Proposal
The CBT is proposing to amend its corn and soybean futures
contracts by requiring Chicago shipping station operators to give
preference to orders for vessel or rail load-out of corn or soybeans
for futures delivery over their cash commitments until shipping
stations operators meet their daily load-out requirement. CBT rules
already extend such a preference to receivers of corn and soybeans for
delivery by barge. In addition, the CBT is proposing to require that
the regular shipper not give preference to one commodity over another
in making delivery and that, when different commodities are to be
loaded out, the applicable load-out rate is the higher of the two.
Finally, the CBT is proposing to delete provisions relating to the in-
loading of corn and soybeans at the Chicago delivery location.
III. Standard of Review
The Commission has reviewed the CBT proposals to determine whether
they would impermissibly reduce the level of deliverable supplies
provided for by the Commission's section 5a(a)(10) Orders or would
violate any other provision of the Act or Commission rules or policies.
IV. Proposed Amendment of Loading Rules
Under the current delivery procedures for the corn and soybean
futures contracts, shipping certificate holders for delivery at the
Chicago delivery location may require load-out from regular elevators
into vessels, rail cars or barges on a first-come first-served basis.
Regular warehouse operators must load the commodity at least at
specified daily rates, which differ depending upon the mode of
transportation provided by the shipping certificate holder. However,
takers of futures delivery by barge are provided a preference over the
shipping station operator's cash commitments until the shipping
station/warehouse has met its daily load-out requirements.\3\ See,
section 5a(a)(10) Order, 62 FR 60850.
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\3\ Similarly, regular warehouse/shipping station operators at
the Chicago delivery point currently are required to in-load corn or
soybeans consecutively without giving preference to products owned
by the operator over the products of others and without giving
preference to one depositor over another. The operator must in-load
products into the warehouse/shipping station consecutively in the
order in which they arrive at specified minimum daily rates pursuant
to in-loading orders previously received, to the extent that the
warehouse capacity for grain and grade permits. The CBT is proposing
to delete these rules relating to in-loading for corn and soybeans.
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The CBT is proposing to amend these provisions by providing all
takers of futures deliveries in Chicago a preference over the shipping
station's cash loading commitments until the shipping station has met
its daily load-out requirements. The CBT's proposed preferential load-
out requirements are contrary to cash market practice, where customers
generally are accommodated on a first-come, first-served basis.
Nevertheless, the Commission approved such a preference in its
section 5a(a)(10) Orders for barge load-out. In doing so, it noted that
the effect of this departure from cash market practice on deliverable
supplies was difficult to measure in advance and required the CBT to
report to the Commission on experience with deliveries for a five year
period. Whatever the preference's overall effect, in light of the
diminished importance of Chicago as a delivery point, the effect of
extending the preference to Chicago vessel and rail delivery takers
likely will be minor. In any event, the CBT is required under the
section 5a(a)(10) Orders to report on delivery experience. Such reports
will provide better information on what effect, if any, extending the
preference to Chicago vessel and rail delivery takers has on
deliverable supplies.\4\
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\4\ Similarly, in light of Chicago's diminished importance as a
delivery point, deletion of the in-loading requirement would have
little impact on overall deliverable supplies on the corn or
soybeans futures contracts.
The CBT also proposes a clarifying amendment that specifies
that, if a lineup for loading out grain into barges from a
particular regular warehouse/shipping station includes both wheat
and corn or soybeans or both oats and corn or soybeans, then the
minimum daily rate for loading shall be the highest of the
applicable rates. According to trade sources, barge loading rates do
not vary substantially among these commodities. Accordingly, the
proposed amendments would not create any impediment to deliveries
and are hereby approved by the Commission.
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V. Concentration of Ownership of Delivery Facilities
Section 15 of the Act requires the Commission, when reviewing
exchange rule proposals or amendments, to consider the public interest
to be protected by the antitrust laws and to endeavor to take the least
anti-competitive means of achieving the
[[Page 4847]]
objectives of the Act. Guideline No. 1 requires exchanges to justify
the contract's delivery specifications in light of the number and total
capacity of facilities meeting contract requirements and the extent to
which ownership and control of such facilities is dispersed or
concentrated. 17 CFR part 5, Appendix A(a)(2)(C)(1) and (4). These
proposed rule amendments do not raise particular issues under section
15.
However, on November 10, 1998, Cargill announced that it had signed
an agreement to acquire Continental Grain Company's (Continental)
commodity marketing business, including Continental's grain storage
facilities in the United States. If this announced acquisition is
consummated, Cargill potentially will own and operate both of the two
delivery warehouse/shipping stations in the Chicago area and will take
over one of the three delivery shipping stations in St. Louis. Under
the agreement, Cargill also will acquire six barge loading facilities
on the northern Illinois River and two facilities on the southern
Illinois River. Cargill's ownership of potential delivery capacity on
the new corn contract will increase from 13% to 34% and on the new
soybean contract from 13% to 38%. This increased concentration
potentially could raise significant issues under section 15 and could
have a negative impact on the corn and soybean futures contracts.
The Cargill acquisition is under review by the United States
Department of Justice. Until the Department of Justice acts to approve,
disapprove or modify the terms of the acquisition, the acquisition will
not be consummated. The Commission does not currently have sufficient
information to determine its actual effect on the contract. The
Commission will consider further this issue at such time as the
acquisition occurs. However, in order to assist it in its analysis of
this issue, the Commission directs the CBT carefully to monitor the
1999 corn and soybean futures contract expirations at all of its
delivery locations to assess the impact of concentration of ownership
or control of approved delivery facilities on the price convergence of
the contracts. In addition, the CBT is directed to include such an
analysis in its reports to the Commission on the revised corn and
soybean futures contracts which are required under the section
5a(a)(10) Orders.
VI. Implementation
The CBT plans to apply the proposed amendments to the load-out
provision to all corn and soybeans loaded out against shipping
certificates delivered on the corn and soybean futures contracts on and
after January 3, 2000. The CBT also proposes to apply the amendments to
all corn and soybean warehouse receipts that are outstanding on January
3, 2000.
In reviewing whether proposed amendments can be applied to the
terms of existing contracts, the Commission considers the effect any
such amendments may have on the value of existing positions. In this
regard, the proposed amendments to the soybean and corn futures
contracts are proposed to apply to shipping certificates delivered
against futures positions in certain currently-listed contract months
that expire after January 3, 2000, and to all corn and soybean
warehouse receipts that are outstanding on that date. The Commission
specifically requested public comment on what effect, if any, the
proposed amendments would have on the value of existing positions. 63
FR 65175. None of the commenters addressed this issue.
As discussed above, the proposed loading provisions would require
the warehouse/shipping station operator to standardize loading
requirements in Chicago for all deliveries regardless of mode of
transport presented or commodity. They would not have an impact on the
value of existing positions, and the Commission therefore approves the
CBT's implementation plan under section 5a(a)(12) of the Act.
For the reasons discussed above, the Commission finds that none of
the rule amendments proposed by the CBT would have a discernable impact
on the level of deliverable supplies provided under the Commission's
section 5a(a)(10) Orders or otherwise would violate the Act or
Commission rules or policies.
Based on this finding, the Commission hereby approves under
sections 5a(a)(12) and 5a(a)(10) of the Act, 7 U.S.C. 7a(a)(12) and
7a(a)(10), amendments to the CBT's corn and soybean futures contracts
as shown in attachment 1 to this Order and amends the Commission's
Orders under section 5a(a)(10) of the Act of May 7, 1998, and November
7, 1997, making all changes necessary to effect the above approval.
Further, the Commission hereby directs the CBT carefully to monitor
the 1999 corn and soybean futures contract expirations to assess the
impact of concentration of ownership or control of approved delivery
facilities on the price convergence of the contracts. In addition, the
CBT is directed to include such an analysis in its reports to the
Commission on the revised corn and soybean futures contracts which are
required under the section 5a(a)(10) Orders.
Dated: January 25, 1999.
By the Commission.
Jean A. Webb,
Secretary of the Commission.
Attachment 1.--Rules and Regulations Approved by the Commission for the
Chicago Board of Trade's Corn and Soybean Futures Contracts
Corn
1009.00
1009.01
1049.03
1052.00
1052.00(d)
1052.00A
1081.00(11)
1081.01(12)A.
1081.01(12)B.
1081.01(12)C.
1081.01(12)E.
1081.01(12)H.
1085.01
Soybeans
1009.00
1049.03
1052.00
1052.00(d)
1052.00A
1081.00(11)
1081.01(12)A.
1081.01(12)B.
1081.01(12)C.
1081.01(12)E.
1081.01(12)H.
1085.01
Issued in Washington, DC, this 25th day of January, 1999, by the
Commodity Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-2303 Filed 1-29-99; 8:45 am]
BILLING CODE 6351-01-M
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