Proposed Amendments to the Price Limit and Trading Halt Provisions in Domestic Stock Index Futures Contracts

COMMODITY FUTURES TRADING COMMISSION

Proposed Amendments to the Price Limit and Trading Halt

Provisions in Domestic Stock Index Futures Contracts

AGENCY: Commodity Futures Trading Commission

ACTION: Notice of availability of proposed amendments to the price

limit and trading halt provisions in domestic stock index futures

contracts listed on the Chicago Mercantile Exchange, Chicago Board of

Trade, Kansas City Board of Trade, and New York Futures Exchange.

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SUMMARY: The Chicago Mercantile Exchange (CME), Chicago Board of Trade

(CBOT), Kansas City Board of Trade (KCBT), and New York Futures

Exchange (NYFE) have submitted proposals to modify existing ``circuit

breaker'' and related price limit provisions in those exchanges'

domestic stock index futures contracts. The Director of the Division of

Economic Analysis (Division) of the Commission, acting pursuant to the

authority delegated by Commission Regulation 140.96, has determined

that publication of the proposals for comment is in the public

interest, will assist the Commission in considering the views of

interested persons, and is consistent with the purposes of the

Commodity Exchange Act.

DATE: Comments must be received on or before April 6, 1998.

[[Page 13639]]

ADDRESS: Interested persons should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, 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]. Reference should be made to the

proposed amendments to the price limit and trading halt provisions of

domestic stock index futures and futures option contracts.

FOR FURTHER INFORMATION CONTACT: Please contact Michael Penick of the

Division of Economic Analysis, Commodity Futures Trading Commission,

1155 21st Street NW, Washington, DC 20581, telephone 202-418-5279.

Facsimile number: (202) 418-5527. Electronic mail: [email protected].

SUPPLEMENTARY INFORMATION: The CME, CBOT, KCBT and NYFE proposed

changes to the price limit and trading halt provisions, including

circuit breaker trigger levels, for their domestic stock index futures

contracts. The submissions were made to coordinate with the proposal

from the New York Stock Exchange (NYSE) to revise its circuit breaker

rules. The NYSE proposal would establish three ``circuit breaker''

trading halt triggers that will be reset quarterly such that the levels

are equivalent to 10%, 20%, and 30% of the average closing level of the

Dow Jones Industrial Average (DJIA) for the calendar month preceding

that quarter. These triggers would replace the current fixed 350-point

and 550-point DJIA triggers. The NYSE also proposes to increase the

duration of each circuit breaker trading halt.1 The NYSE

proposal is currently under review by the Securities and Exchange

Commission (SEC). Notice of that proposal was given in the Federal

Register on February 23, 1998 (63 FR 9034).

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\1\ Under current NYSE rules, the 350-point trading halt

generally lasts one half hour and the 550-point trading halt

generally lasts one hour or until the end of the trading day.

Under the NYSE proposal, the halt for a 10% decline generally

will be one hour. However, if the 10% trigger value is reached at or

after 2:00 p.m. but before 2:30 p.m., the halt would be one half

hour, while if it occurs at or after 2:30 p.m. a 10% decline would

not trigger a halt. The halt for a 20% decline generally will be two

hours. However, if the 20% trigger value is reached at or after 1:00

p.m. but before 2:00 p.m., the halt would be one hour, while if it

occurs at or after 2:00 p.m., trading would halt for the rest of the

day. Finally, if the market declines by 30% at any time, trading

will be halted for the remainder of the day.

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The CME proposes that, for each of its domestic stock index

contracts, there be circuit breaker trading halts coordinated with the

NYSE trading halts. Consistent with the quarterly adjustment method

proposed by the NYSE, beginning on the first day of each quarter, the

CME will reset its circuit breaker price limits to 10% and 20% of the

average daily closing price in the current primary futures contract

during the preceding calendar month. The 10% limit will be rounded down

to the nearest multiple of 10 Index points, and the 20% limit will be

twice the 10% limit.2 Following each of the two circuit

breaker trading halts, trading on the CME would resume after the NYSE

reopens and 50% of the stocks in the S&P 500 (measured by

capitalization) have begun to trade. The price limit at the 20% circuit

breaker level will remain in effect when trading resumes following a

20% circuit breaker trading halt.

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\2\ Using this calculation method, the CME's circuit breaker

levels typically will be slightly more restrictive than the

comparable circuit breaker trigger levels on the NYSE which are

based on the DJIA.

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The CME further proposes that, on the day after futures trading

either ended limit-offered or was halted at the 20% circuit breaker

limit, the 10% price decline limit on that next day would be treated as

a ``speed bump'' (discussed below) rather than a circuit breaker price

limit. This is because the S&P 500 futures price could be up to 10

percentage points above the cash index which, as noted, could have

declined as much as 30 percent under proposed NYSE rules. Under this

proposal, on such next day, the futures contracts would be halted if

the NYSE halted, and reopened as described above, with the 20% limit in

place after such reopening.

The CME also proposes to increase its intermediate price decline

limits (speed bumps), generally to 2.5% and 5% of the underlying index,

from the current fixed point levels. 3 Those speed bump

levels will be calculated quarterly. Intermediate price decline limits

are in effect for ten minutes after the primary futures contract is

limit offered. If the futures is limit offered at the end of that 10

minute period, there would be a two minute trading halt, after which

the next price limit would be in effect. The 2.5% price decline limit

also will be the price limit for the overnight Globex session, both

above and below the regular trading hours settlement price.

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\3\ The current speed bumps for the actively traded S&P 500

futures contract are 15 and 30 points or about 1.5% and 3.0% of the

S&P 500 index.

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Finally, the CME proposes to eliminate rule 831 which provides that

daily variation payments are based on the implied market price when the

cash index is lower than the futures price due to price limits on the

futures contract.

The KCBT proposes circuit breaker and price limit rules to its

stock index contracts that generally are coordinated with the proposed

NYSE rules and generally are similar to those of the CME. However,

under that proposal, the KCBT would calculate, on a daily basis, speed

bump price limits of 2.5% and 5.0% of the previous day's settlement

price, and circuit breaker price limits of 10% and 20% of the previous

day's settlement price. Trading would halt whenever either of the two

lead futures contract months is locked limit down and trading halts on

the NYSE. The CBOT proposes price limits and trading halts for its DJIA

futures contract at the same trigger levels as proposed by the NYSE.

Consistent with current CBOT rules, the CBOT's proposal does not

include speed bump price limits prior to the first circuit breaker

price limit. The NYFE proposes circuit breaker and price limit rules

for its domestic stock index contracts at the same trigger levels as

proposed by the NYSE. In addition, the NYFE proposes to delete its

speed bump price limits prior to the first circuit breaker price limit.

Copies of the proposed amendments will be available for inspection

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

1155 21st Street, N.W., Washington, D.C. 20581. Copies of the terms and

conditions can be obtained through the Office of the Secretariat by

mail at the above address or by phone at (202) 418-5097.

Other materials submitted by the CME, CBOT, KCBT, and NYFE in

support of the proposals may be available upon request pursuant to the

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

regulations thereunder (17 C.F.R. Part 145 (1987)), except to the

extent they are entitled to confidential treatment as set forth in 17

C.F.R. 145.5 and 145.9. 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 17 C.F.R. 145.7 and 145.8.

Any person interested in submitting written data, views, or

arguments on the proposed amendments, or with respect to other

materials submitted by the CME, CBOT, KCBT, and NYFE should send such

comments to Jean A. Webb, Secretary, Commodity Futures Trading

Commission, 1155 21st Street, NW, Washington, DC 20581 by the specified

date.

[[Page 13640]]

Issued in Washington, DC, on March 12, 1998.

John Mielke,

Acting Director.

[FR Doc. 98-7244 Filed 3-19-98; 8:45 am]

BILLING CODE 6351-01-P