CFTC Urged to Make Changes in Proposed Rule

October 12, 1999

The National Grain and Feed Association has urged the Commodity Futures Trading Commission to make further changes to a proposed rule to amend the agricultural trade options program to "improve the chances of securing reasonable participation and a meaningful project."

In June 1998 the CFTC lifted a ban on agricultural trade options as part of a pilot project. But more than a year into a three-year pilot program, not a single company or entity had registered with the CFTC to offer agricultural trade options. The NGFA says this is due to the agency's excessive regulatory requirements, some of which have undercut the potential purposes for which such options could be used.

On Aug. 25, CFTC proposed several changes in the pilot project, but the NGFA questions whether the changes proposed are sufficient to encourage grain elevators and other merchants to offer agricultural trade options.

Among its proposals, NGFA suggests that CFTC eliminate the application of CFTC reparations to agricultural trade option contracts triggered by the CFTC's registration requirement, significantly reduce the $10 million minimum net worth exemption requirement, eliminate the requirement that agricultural trade options be settled only by physical delivery, streamline registration requirements to limit registration to the company and its principals who exercise direct control over the agricultural trade option merchant's business affairs, and eliminate specific contract terms required to be included in agricultural trade options.