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

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 PA[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