Requirements for silver are fully satisfied.
If the February 4, 1980 Original Margin Requirements are fully satisfied before February 4, 1980, then any further variation margin credited to a customer's account may be paid to that customer.
6. Effective Monday, January 21, 1980, Original Margin Rule B reads as follows: "Rule B. It is incumbent upon each member to require satisfactory evidence that all hedging trades are bona fide hedging trades as hereinafter defined in Rule '0'." The second sentence of Original Margin Rule B has been
COMEX Members
Commodity Exchange, Inc., Four World Trade Center, New York, NY 10048
Notice #80-19
January 24, 1980
NEW EXCEPTIONS UNDER PARAGRAPH
5 OF LIQUIDATION ONLY TRADING
RESOLUTIONS ADOPTED JANUARY 21, 1980
The Board of Governors today adopted the following new exception to the January 21, 1980 "liquidation only" resolutions for silver effective at 12:00 Noon, January 24, 1980:
Any person purchasing a futures contract in the spot month pursuant to paragraph 2 of the January 21, 1980 resolutions who does not switch such position into the preexisting maturity may accept delivery against such spot contract so long as:
(a) the market is either limit up or limit down
in the pre-existing maturity at the time the
spot transaction is executed;
(b) the clearing member maintaining such account
causes delivery of the indentical warehouse
receipt against a March or nearer short
position; and
(c) if the pre-existing short position was in a
maturity more distant than March, such short
position shall be switched into a short March
or nearer position.
Any clearing member receiving a warehouse receipt pursuant to this exception shall immediately furnish to the Exchange a written description of such warehouse receipt.
Inquiries regarding the above should be directed to Richard Fielding, Esq. at 938-2951 or the Office of the Secretary
NOTE: See Comex Notice #80-17 for the full text of the January 21, 1980 Resolutions referred to above.
We refer to your letter of February 25, 1980 relating to
the enforcement by Commodity Exchange, Inc. ("Exchange")
of its Silver Rule 7 (d).
On January 7, 1980 the Board of Governors of the Exchange
("Board") adopted Silver Rule 7, to be effective February
18, 1980. During the five week period prior to the effec-
tive date of the Rule, the staff of the Exchange and Counsel
for the Exchange were in continuous contact with clearing
members who maintained positions in excess of those permitted
by Silver Rule 7. They were also in regular and continuous
contact with beneficial owners of certain of those positions.
Representatives of the Division of Trading and Markets were
continuously apprised of the status of those positions which,
on February 18, 1980, might violate Silver Rule 7 (d) and in-
formation was continuously exchanged with respect to those
positions.
On February 14, 1980, with the rapidly approaching effective
date for Silver Rule 7, the staff of the Exchange and Counsel
for the Exchange increased its efforts to cause clearing mem-
bers to effect compliance with Silver Rule 7 (d) as it applied
to the March 1980 Silver contract. From that date through
February 21, 1980, continual discussions took place with those
three clearing members that maintained positions for customers
in violation of Silver Rule 7 (d). On the evening of February
21, 1980, the Chairman of the Board directed the Secretary of
the Exchange to schedule a meeting of the Board for Monday,
February 25, 1980. That meeting was scheduled to consider the
market surveillance implications of Silver Rule 7 and in
anticipation of the possibility of continual violations of
Silver Rule 7 (d) as first notice day for the March Silver
contract drew nearer.
Through the efforts of the staff of the Exchange and counsel for the Exchange, and as a result of continuous written and telephone communications with members by the close of business on Monday, February 25, 1980, all clearing members had effected compliance with Silver Rule 7 (d) for the March Silver contract. That information was conveyed to the Board at its meeting on February 25 and as a result of such compliance, and the report of the Control Committee presented to the Board, no action was taken by the Board with respect thereto. Should you require further details with respect to the communications described above, we will be pleased to furnish the same.
In addition to the market surveillance implications of Silver
Rule 7 and the Exchange treatment thereof as described above,
there are disciplinary matters resulting from the apparent
violations of Silver Rule 7 (d) which require disposition.
With respect to those members of the Exchange that maintained
accounts which were in violation of Silver Rule 7 (d) on and
after February 18, 1980, the Compliance Department of the
Exchange is scheduling a meeting of the Business Conduct
Committee of the Exchange during the week of March 3, 1980 in
order to commence disciplinary proceedings for violations of
Silver Rule 7 (d). The Compliance staff of the Exchange intends
to aggressively pursue these and any future violations of Sil-
ver Rule 7.
As a result of the foregoing, and based upon the knowledge of
members of your staff about the Exchange's continuous monitor-
ing and enforcing of Silver Rule 7, we were surprised by, and
disagree with, the assertion in your letter of February 25,
1980 that the Exchange "is in apparent violation of Section
5a (8) of the Commodity Exchange Act, as amended, and Commission
Regulation 1.51." We believe that the Exchange has acted, and
continues to act, diligently and responsibly: (a) with respect
to the market surveillance features of Silver Rule 7, insuring
that all accounts complied with Silver Rule 7 (d) prior to first
notice day for March Silver contracts; and (b) with respect to
the disciplinary aspects of Silver Rule 7, commencing investi-
gations and disciplinary actions against those members of the
Exchange believed to be in violation of Silver Rule 7 (d).
Very truly yours,
Lee H. Berendt.
Lee H. Berendt
President
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