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On the market.

On the Market

Over the past five years, changes to the world's economic and political order have been striking.

As part of this redefined political and economic order, business today is characterized by blurred borders, rapid communication and intense competition. Moreover, the residual effects brought by this ongoing whirlwind of change have and will affect our markets and the way we do business.

Our challenge ... our mandate ... is to continue providing the marketplace of first choice. A marketplace that is at once efficient, accessible and equitable. One that meets the fluctuating requirements of our membership and those who count on the Exchange for their hedging and investment needs.

One state-of-the-art computer system we've recently installed is of particular interest and benefit to the members of the coffee trade. The Commodity Operations Processing System . . . we call it "COPS" . . . virtually eliminates the mountain of paperwork that has been associated with coffee deliveries. The system electronically links members, warehouses, samplers and weighers through the Exchange's computers, enabling on-line access to the delivery process.

The first phase of the program provides a "paperless" medium for the coffee application, grading and certification process. Other than worksheets, no paper is required in filing an application, verifying warehouse status, sampling coffee, scheduling grading, certifying coffee and weighing it into deliverable lots.

For the members and their operations departments, less paperwork and more efficiency translates to better management of Exchange-related business.

Just as COPS is a boon to back office efficiency, modifications and additions to our coffee contracts are a boon to liquidity and utility.

One set of amendments to the Coffee "C" contract is currently under regulatory review and provides for the addition of San Francisco as a delivery point.

The Pacific Coast makes up a large portion of the U.S. coffee market ... By adding San Francisco as a delivery point, we add more flexibility to the coffee "C" contract, magnifying its importance to the coffee trade.

Under the contract amendments, coffee delivered to San Francisco will be discounted two and one quarter cents. The amendments will become effective for newly listed contract months within 30 days of CFTC approval.

While adding San Francisco as a delivery point broadens the national scope of the Coffee "C" contract, we have also tried to make the contract more attractive to our numerous overseas participants.

To that end, the Coffee Committee recently approved plans for a Euro-differential contract to trade in conjunction with the "C" contract.

As designed, the planned contract would simply both a more sophisticated hedging mechanism for European concerns and take advantage of the "C" contract's valuable liquidity. It's a solution that not only adds new hedging capability but also protects the "C" contract by maintaining it as the basis for world trade in arabica coffee.

The contract will be priced based on the premium or discount that anyone would be willing to pay or to charge to make or take delivery of "C" quality coffee at European ports. In other words, the differential contract only reflects price differences between European and New York delivery.

Until the delivery notice period, the differential contract may be traded either separately or in addition to the "C" contract. After notice day ... those with positions in the differential market must also have a corresponding position in the "C" market. A notice to deliver in Europe could only be issued by someone who is short both markets. The differential contract will be traded in dollars, with delivery to be made at Exchange licensed warehouses in Antwerp, Bremen, Hamburg and Amsterdam/Rotterdam, utilizing our existing grading system in New York.

With the rapid spread of market-oriented economies in the East and a united Western community, Europe is poised for a coffee demand explosion. A Euro-differential contract will, in essence, deliver our superior hedging forum to European shores in a package that lets the market value widely fluctuate currency and freight rates.

The Euro-differential contract will have to meet with CFTC approval before trading begins.

As you can well see, we've been pretty busy at the Exchange. Yet, there is little time to look back. Other issues loom large and require diligent consideration. To continue to thrive, we need to remain flexible. Remain willing to adapt to changing global conditions. And, we need to continue acting in the best interests of our membership. Maintaining contract utility. Promoting market liquidity. Facilitating global access.

I am confident that we know our business imperatives. Hopefully, we will continue to be winners on into the 21st century.
COPYRIGHT 1990 Lockwood Trade Journal Co., Inc.
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Title Annotation:excerpts from remarks made at Green Coffee Association's annual conference
Publication:Tea & Coffee Trade Journal
Article Type:transcript
Date:Nov 1, 1990
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