New York Mercantile Exchange: Proposed Amendments to the Gulf Coast Unleaded Regular Gasoline Futures Contract Relating to the Delivery Procedures and Delivery Period

COMMODITY FUTURES TRADING COMMISSION

New York Mercantile Exchange: Proposed Amendments to the Gulf

Coast Unleaded Regular Gasoline Futures Contract Relating to the

Delivery Procedures and Delivery Period

agency: Commodity Futures Trading Commission.

action: Notice of proposed contract market rule changes.

-----------------------------------------------------------------------

summary: The New York Mercantile Exchange (NYMEX or Exchange) has

submitted proposed amendments to its Gulf Coast unleaded regular

gasoline futures contract that, among other things, would: (1) Require

that all futures deliveries regardless of size be made on the Colonial

Pipeline system at an injection point from Pasadena, Texas to

Moundville, Alabama; (2) eliminate the public terminal delivery

alternative; (3) require the buyer receiving less than 25 contracts to

reimburse the seller for any Colonial Pipeline shipping charges

incurred for making such deliveries; and (4) for a particular delivery

month restrict all futures deliveries to the third cycle of the

Colonial Pipeline for that month, provided that deliveries of less than

25 contracts would be further restricted to the back-half of such third

Colonial Pipeline cycle.

In accordance with Section 5a(12) of the Commodity Exchange Act and

acting pursuant to the authority delegated by Commission Regulation

140.96, the Acting Director of the Division of Economic Analysis

(Division) of the Commodity Futures Trading Commission (Commission) has

determined, on behalf of the Commission, that the proposed amendments

are of major economic significance. On behalf of the Commission, the

Division is requesting comment on these proposals.

dates: Comments must be received on or before June 30, 1995.

addresses: Interested persons should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K

Street NW., Washington, D.C. 20581. Reference should be made to the

proposed amendments to the New York Mercantile Exchange Gulf Coast

unleaded regular gasoline futures contract.

for further information contact: John Forkkio, Jr., Division of

Economic Analysis, Commodity Futures Trading Commission, 2033 K Street

NW., Washington, D.C. 20581, telephone (202) 254-7303.

supplementary information: Under current provisions of the Gulf Coast

unleaded regular gasoline (gasoline) futures contract, for all

positions involving 25 contracts or more, delivery must be F.O.B. at a

Colonial Pipeline injection station selected by the seller in the

delivery area. The delivery area for pipeline deliveries encompasses

the area along the Colonial Pipeline from Pasadena, Texas upstream to

Moundville, Alabama. For all positions involving deliveries of less

than 25 contracts, deliveries must be f.o.b. at one of the three public

terminal facilities located in the region around Pasadena, Texas--GATX

Terminals Corporation, OilTanking Houston Inc., or Amerada Hess

Corporation. Such deliveries can be made by intra-facility or inter-

facility transfer of product or by barge shipment. All public terminal

deliveries are assessed a surcharge of 1.75 cents per gallon, payable

by any party receiving or delivering less than 25 contracts.

Under existing provisions, for a particular delivery month,

pipeline deliveries must be made during either the second or third

Colonial Pipeline delivery cycle for that month. This essentially

provides a delivery period of about 21 days.\1\

\1\ To efficiently transport product through its pipeline

system, Colonial divides the year into 36 cycles. Each month has

three cycles; each with a duration of about ten days. Additionally,

each cycle is subdivided into a front half and a back half, each of

five days duration.

---------------------------------------------------------------------------

Under the proposed amendments, all deliveries on the gasoline

futures contract, regardless of position size, must be by pipeline

delivery into the Colonial Pipeline system in the existing delivery

area as noted above.\2\ Additionally, under the proposed amendments,

all deliveries in a particular delivery month would be restricted to

the third cycle of the Colonial Pipeline for that month; provided that

deliveries with respect to positions involving less than 25 contracts

would be further restricted to the back-half of such third cycle.

Proposed amendments also would require the seller making delivery on a

position involving less than 25 contracts to make all the required

arrangements for shipment of the product on the Colonial Pipeline, and

the buyer to reimburse the seller for any Colonial Pipeline shipping

charges incurred by the seller in making such deliveries.

\2\ As a result of this proposal, public terminal deliveries on

the contract will no longer be permitted. As a consequence, intra

and inter-facility transfers and barge shipments will not be

permissible methods of delivery on the contract.

The Exchange proposes to apply the proposed amendments to newly

listed contract months only following its receipt of notice of

Commission approval.

According to the Exchange, the proposed amendments were proposed to

conform the futures delivery rules with cash market practices in the

Gulf and to provide more certainty in the timing of deliveries on the

futures contract. Specifically, the NYMEX stated:

The Contract will remain unchanged for ``round'' deliveries

where delivery is made directly into the Colonial Pipeline * * *

* * * Deliveries of less than 25,000 barrels are not directly

deliverable into the Pipeline, and hence, the existing Gulf Coast

Contract has specified delivery of odd-lots into public terminals.

The proposed amendments are based on the fact that Colonial allows

for a shipper to designate beneficial owners of product through what

is known as a ``consignee'' relationship * * *.

The ``consignee'' relationship allows shippers to consign

smaller portions of gasoline shipments to one or more beneficial

owners, so that odd-lot batches of less than 25,000 barrels can be

accommodated on the [[Page 28392]] Colonial Pipeline. An authorized

shipper on Colonial is allowed to break up a batch of 25,000

barrels, and allocate odd-lot batches to various consignees, who

then specify a delivery point along the Colonial Pipeline. The

beneficial owner, or consignee, can be changed on Colonial's

records. Thus, an odd-lot delivery of gasoline can be shipped on the

Colonial Pipeline, as long as the odd-lot seller finds a shipper in

the cash market to add the seller's odd-lot batch to his existing

shipment of at least 25,000 barrels on Colonial. The ``consignee''

relationship provides the mechanism to perform the odd-lot delivery

directly into Colonial Pipeline * * *.

With respect to the Exchange proposal to change the delivery period

so that all deliveries will occur in either the front-half or back-half

of the third cycle of the Colonial Pipeline, the NYMEX stated that:

In the cash market, prices are negotiated for products delivered

in each half-cycle increment on Colonial Pipeline, and prices

typically vary between each half-cycle, depending on market

conditions. Narrowing the delivery period to the third cycle of the

month provides sufficient capacity on the Colonial Pipeline to

accommodate NYMEX deliveries. In addition, narrowing the delivery

period to the third cycle would provide greater certainly in terms

of the timing for the pricing of the commodity. The most actively

traded cash market instrument in the Gulf Coast is for delivery in

the third cycle of Colonial Pipeline.

The Division requests comment on the proposed changes to the NYMEX

gasoline futures contract. The Commission is specifically requesting

comments on the effect of the proposed restrictions regarding

deliveries involving less than 25 contracts. The Division also requests

comment on the effect of the proposal to restrict deliveries to one

Colonial Pipeline cycle per month on the economically deliverable

supply of gasoline available for the contract.

Copies of the proposed amendments will be available for inspection

at the Office of the Secretariat, Commodity Futures Trading Commission,

2033 K Street NW., Washington, D.C. 20581. Copies of the amended terms

and conditions can be obtained through the Office of the Secretariat by

mail at the above address or by telephone at (202) 254-6314.

The materials submitted by the Exchange in support of the proposed

amendments may be available upon request pursuant to the Freedom of

Information Act (5 U.S.C. 552) and the Commission's regulations

thereunder (17 CFR Part 145 (1987)). 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 CFR 145.7 and 145.8.

Any person interested in submitting written data, views or

arguments on the proposed amendment should send such comments to Jean

A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K Street

NW., Washington, D.C. 20481 by the specified date.

Issued in Washington, D.C. on May 23, 1995.

Blake Imel,

Acting Director.

[FR Doc. 95-13188 Filed 5-30-95; 8:45 am]

BILLING CODE 6351-01-M