Applications of the Chicago Mercantile Exchange for Designation as a Contract Market in Futures and Options on Three Month Eurodallar FRAs

COMMODITY FUTURES TRADING COMMISSION

Applications of the Chicago Mercantile Exchange for Designation

as a Contract Market in Futures and Options on Three Month Eurodallar

FRAs

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of amended terms and conditions of

proposed commodity futures and option contracts.

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SUMMARY: The Chicago Mercantile Exchange (CME or Exchange) has applied

for designation as a contract market in futures and options on three-

month Eurodallar FRAs (forward rate agreements). Following Commission

receipt of the applications in July 1998, the Director of the Division

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

the authority delegated by Commission Regulation 140.96, published

those proposals for public comment (63 FR 42617). That comment period

ended on September 9, 1998. In a supplemental submission dated October

2, 1998, the CME proposed to amend the original application to provide

that positions in the proposed three-month Eurodallar FRA futures

contract would not be

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offset. The Commission has determined that an additional period for

public comment on the proposals will assist the Commission in

considering the views of interested persons, and is consistent with the

purposes of the Commodity Exchange Act.

DATES: Comments must be received on or before June 14, 1999.

ADDRESSES: Interested persons should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three

Lafayette Center, 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 CME three-month Eurodallar FRA futures

and option contracts.

FOR FURTHER INFORMATION CONTACT: Please contact David Van Wagner of the

Division of Trading and Markets, telephone (202) 418-5481. Facsimile

number (202) 418-5547. Electronic Mail: [email protected]. With

respect to the individual contract terms and conditions, please contact

Michael Penick of the Division of Economic Analysis, Commodity Futures

Trading Commission, Three Lafayette Center, 1155 21st Street NW,

Washington, DC 20581, telephone (202) 418-5279. Facsimile number: (202)

418-5527. Electronic mail: [email protected].

SUPPLEMENTARY INFORMATION: In the original application, the terms and

conditions of the proposed futures contract provided that the contract

would be cash settled using procedures substantially identical to those

of the existing CME Eurodollar futures contract. Other features of the

proposed contract were also comparable to those approved for existing

markets.

In a supplemental filing, the CME has clarified which exchange

procedures specifically would apply to the trading, clearing and

settlement of the proposed three-month Eurodollar FRA futures contract.

As proposed, CME Rule ____.00, Scope of Chapter, would be modified to

state that the procedures for trading, clearing and settlement of the

three-month Eurodollar FRA futures are governed by the rules of the

Exchange except for Rule 806.\1\ Procedures requiring the posting of

collateral to cover daily pays and collects would remain the same.

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\1\ CME Rule 806 states that ``a clearing member long or short

any commodity to the Clearing House as a result of substitution may

liquidate the position by acquiring an opposite position for its

principal.''

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Under the proposed revision, positions in the proposed three-month

Eurodallar FRA futures contract would not be liquidated by offset.

Rather, positions must be held to contract expiration once opened. As

the CME explained in its supplemental filing:

. . . the value of a price change in the Eurodollar FRA futures

contract is not known until the final settlement date when the value

of a tick is determined. Therefore, the Clearinghouse cannot

determine accurately the pays and collects on Eurodollar FRA futures

positions until the final settlement. . . Hence, as the Eurodollar

FRA futures rules already reflect, the Eurodollar FRA futures

contract is not subject to Rule 814 regarding daily pays and

collects between the contract holder and the Clearinghouse.

Similarly, because the Eurodollar FRA futures contract is not

settled daily and because pays and collects do not occur daily as

the Eurodollar futures contracts, the Clearinghouse cannot offset

Eurodollar FRA futures contracts. Rather, pays and collects will be

netted out across the settling Eurodollar FRA contracts on the

settlement date.\2\

\2\ As mentioned, the Clearinghouse would require the posting of

collateral to cover pays and collects on the final settlement date.

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The Commission is requesting comment on the proposed contract

provisions with respect to exchange financial integrity, futures

industry practices, and the application of any provisions of the

Commodity Exchange Act or of any specific Commission policy or

interpretation.

Copies of the amended terms and conditions will be available for

inspection at the Office of the Secretariat, Commodity Futures Trading

Commission, Three Lafayette Center, 1155 21st Street NW, Washington, DC

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) 418-5100.

Other materials submitted by the CME in support of the applications

for contract market designation 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 (1997)), except to the extent

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

145.5 ad 145.9. Requests for copies of such materials should be made to

the FOI, Privacy and Sunshine Act Compliance Staff of the Office of

Secretariat at the Commission's headquarters in accordance with 17 CFR

145.7 and 145.8.

Any person interested in submitting written data, views, or

arguments on the proposed terms and conditions, or with respect to

other materials submitted by the CME should send such comments to Jean

A. Webb, Secretary, Commodity Futures Trading Commission, Three

Lafayette Central, 1155 21st Street NW, Washington, DC 20581 by the

specified date.

Issued in Washington, DC, on May 5, 1999.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 99-11785 Filed 5-12-99; 9:17 am]

BILLING CODE 6351-01M-M