Foreign Option Transactions

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30

Foreign Option Transactions

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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

SUMMARY: The Commodity Futures Trading Commission (Commission) is:

confirming that the Part 30 Order issued on February 17, 1993 (the

``Initial Order'') to the Tokyo Grain Exchange (TGE) continues in

effect subsequent to the merger on October 1, 1993 of the TGE with the

Tokyo Sugar Exchange (TSE) with the TGE as the surviving entity; and

allowing the option contract on the raw sugar futures contract traded

on TGE to be offered or sold to persons located in the United States.

This Order is issued pursuant to Commission rules 30.3 and 30.10,

17 CFR 30.3 and 30.10 (1995), which: granted an exemption to designated

members of the Exchange from the application of certain of the

Commission's foreign futures and option rules based on substituted

compliance with comparable Japanese regulatory and self-regulatory

requirements; and authorized options on U.S. soybean futures contracts

traded on the TGE to be offered or sold in the United States, 58 FR

10953 (Feb. 23, 1993). By this Order, the Commission also acknowledges

the substitution of the merged TGE as the party to several ongoing

information sharing and financial intermediary recognition arrangements

entered into with the former TGE, the Ministry of Agriculture, Forestry

and Fisheries (``MAFF'') and the Commission as described in the Initial

Order.

EFFECTIVE DATE: February 28, 1996.

FOR FURTHER INFORMATION CONTACT: Jane C. Kang, Esq. or Robert

Rosenfeld, Esq., Division of Trading and Markets, Commodity Futures

Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,

Washington, DC 20581. Telephone: (202) 418-5435.

SUPPLEMENTARY INFORMATION: The Commission has issued the following

Order:

United States of America Before The Commodity Futures Trading

Commission

Order Pursuant to Commission Rules 30.3 and 30.10 Confirming that the

Initial Order to the TGE Continues in Effect Subsequent to the Merger

of TGE and TSE and Permitting Option Contracts on the Raw Sugar Futures

Contract Traded on the TGE To Be Offered or Sold to Persons Located in

the United States Thirty Days After Publication of This Notice in the

Federal Register Absent Further Notice

In the Initial Order,1 the Commission exempted certain

designated members of the TGE from the application of certain of the

foreign futures and option rules based on substituted compliance with

comparable Japanese regulatory and self-regulatory requirements and

allowed option contracts on U.S. soybean futures contracts traded on

the TGE to be offered or sold in the United States.2 Among other

conditions, the Initial Order specified that:

\1\ See 58 FR 10953 (February 23, 1993).

\2\ Commission rule 30.3(a), 17 CFR 30.3(a), makes it unlawful

for any person to engage in the offer or sale of a foreign option

product until the Commission, by order, authorizes such foreign

option to be offered or sold in the United States.

Except as otherwise permitted under the Commodity Exchange Act

and regulations thereunder, * * * no offer or sale of any Tokyo

Grain Exchange option product in the United States shall be made

until thirty days after publication in the Federal Register of

notice specifying the particular option(s) to be offered or sold

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

pursuant to this Order.

On October 1, 1993, the membership of the TSE merged with the TGE

with the TGE as the surviving entity. The merger was approved by the

MAFF, the government regulator with oversight responsibility for both

exchanges.

The Exchange has represented, among other things, that the basis

upon which the Commission issued the Initial Order as well as the terms

and conditions set forth therein continue in effect with respect to TGE

subsequent to the merger with TSE.3 In particular, the Exchange

has represented that: 4

\3\ In this connection, the Initial Order was issued, in part,

based on the Exchange's commitment to phase in physical segregation

requirements for customer property. Specifically, a special

enforcement order issued by MAFF on December 14, 1990 required that

one quarter of all customer property held by an FCM be physically

segregated in accordance with Article 92-2 of the CEL, with an

additional quarter to be segregated on April 1 of each subsequent

year until April 1, 1996, when 100% of all customer property will be

required to be segregated. Therefore, 75% of customer property is

currently subject to physical segregation at the TGE. Under the CEL,

the segregation protection is supplemented by the Guarantee Money

Fund, the Commodity Transaction Responsible Reserve Fund, Membership

Trust Money and the Compensation Fund.

\4\ See letter dated June 14, 1995 from Seiji Mori, TGE, to

Andrea M. Corcoran, Commission and letters dated July 11 and July

28, 1995 from Itsuji Yanagisawa, TGE, to Jane C. Kang, Commission.

(1) the recognition and continued oversight by MAFF of TGE

remain unaffected by the merger;

(2) the TSE futures and options which are now traded on the TGE

Sugar Market are designated and traded according to the requirements

of the Japanese Commodity Exchange Law (``CEL''), which the

Commission considered in issuing the Initial Order to the TGE; and

[[Page 2718]]

(3) no significant rule changes have been implemented at TGE as

a result of the merger: the only modifications made to date have

been those necessary to bring futures and options contracts traded

at TSE within the TGE regulatory structure.

In particular, the TGE has summarized relevant changes resulting

from the merger as follows:

(1) Membership. Although many TSE members were also TGE members,

TSE had an additional category of membership--associate members who

are permitted to trade only for their own accounts and must execute

their trades through a futures commission merchant (``FCM'') member

of the TGE. Therefore, TGE rules were amended to add associate

members to the existing regular member and FCM categories.

(2) Creation of Two Markets. The integrated, centrally located

TGE marketplace now consists of a TGE Agricultural Market, trading

commodities previously associated with TGE and a TGE Sugar Market,

trading commodities previously associated with TSE.

(3) Staff. Staff of the two exchanges merged to form staff of

the TGE to ensure there is no diminution in oversight or staff

expertise. The 38 staff members who are responsible for market

surveillance comprise one-third of the total Exchange staff.

By letter dated June 14, 1995, TGE requested that the Commission

confirm that the Initial Order continues in effect relative to the

merged entity which came into existence on October 1, 1993 and

supplement the Initial Order authorizing the offer and sale in the

United States of options on the U.S. soybean futures contract by also

authorizing the TGE's option contract on the raw sugar futures contract

to be offered or sold to persons located in the United States. 5

\5\ The TGE's application had submitted terms for two option

contracts on raw sugar futures contracts. The last trading day for

one of those contracts was October 31, 1995. Accordingly, this Order

authorizes the one option contract on the raw sugar futures contract

which started trading on January 1, 1995 as described below in the

``Contract Specifications''.

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

Based upon the foregoing, and subject to the terms and conditions

specified in the Initial Order, the Commission hereby publishes this

Order in the Federal Register confirming the continued applicability of

the Initial Order to the newly merged entity, TGE, and allowing the

option contract based on the raw sugar futures contract traded on the

TGE to be offered or sold to persons located in the United States

thirty days after publication of this Order in the Federal Register,

unless prior to that date the Commission receives any comments which

may result in a determination to delay the effective date of the Order

pending review of such comments. Under such circumstances the

Commission will provide notice.

Contract Specifications Options on Raw Sugar Futures (March 1996

Contract)

Year Contract Began Trading--May 1992

Trading Hours

Morning: Opening Session, 9:10 a.m.-9:30 a.m.; Continuous Session

9:30 a.m.-11:30 a.m.

Afternoon: Opening Session, 1:00 p.m.-1:15 p.m.; Continuous

Session, 1:15 p.m.-3:00 p.m.; Closing Session, 3:00 p.m.-3:15 p.m.

Contract Unit--One TGE Raw sugar futures contract

Delivery Months--January, March, May, July, September and November

within a 15 month period

Price Quotation--Yen per 1,000 kilogram

Minimum Price Fluctuation--10 yen per 1,000 kilogram (500 yen per

contract)

Maximum Daily Price Fluctuation--1,000 yen per 1,000 kilogram with

variable limits effective under certain conditions.

Strike Price Increment--1,000 yen per 1,000 kilogram intervals with one

strike price at-the-money and minimum of three exercise prices above

and three below.

Speculative Position Limits--None

Last Trading Day--The last business day 3 months prior to the delivery

month of the underlying futures contract.

Expiration Date--3:45 p.m. of the last trading day

Automatic Exercise--None

Exercise Style--American style. The option holder shall give an

exercise notice to the FCMs by 3:30 p.m. of any business day up to the

last trading day. FCMs and regular members shall give an exercise

notice to the FCMs from 3:00 p.m. to 3:45 p.m. of any business day up

to the last trading day. The Exchange shall proportionally assign an

exercised position to the option writer.

Customer Margin--The writer shall deposit 50,000 yen (the half amount

of the initial margin of the underlying futures contract) plus the

option premium per one contract to FCMs.

Commission Fee

New Order, 3,000 yen or less per one contract

Resale/Repurchase (for liquidation), 2,000 yen or less per one

contract.

Note: The first trading day of March 1996 contract started from

January 4, 1995.

List of Subjects in 17 CFR Part 30

Commodity futures, Commodity options, Foreign transactions.

Accordingly, 17 CFR Part 30 is amended as set forth below:

PART 30--FOREIGN FUTURES AND FOREIGN OPTION TRANSACTIONS

1. The authority citation for Part 30 continues to read as follows:

Authority: Secs. 2(a)(1)(A), 4, 4c, and 8a of the Commodity

Exchange Act, 7 U.S.C. 2, 6, 6c and 12a.

2. Appendix B to Part 30 is amended by adding the following entry

after the existing entries for the ``Tokyo Grain Exchange'' to read as

follows:

Appendix B.--Option Contracts Permitted To Be Offered or Sold in the

U.S. Pursuant to Sec. 30.3(a)

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

FR date and

Exchange Type of contract citation

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

* * * * *

* *

Tokyo Grain Exchange........ Option Contract on 1996; ____FR____

the Raw Sugar

Futures Contract.

* * * * *

* *

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

[[Page 2719]]

Issued in Washington, D.C. on January 22, 1996.

Jean A. Webb,

Secretary to the Commission.

[FR Doc. 96-1511 Filed 1-26-96; 8:45 am]

BILLING CODE 6351-01-P