Fed allows banks a broader role in futures trades.

WASHINGTON - The Federal Reserve has for the first time given a bank holding company permission to participate in a broad range of nonfinancial futures.

The Fed told the Bank of Montreal last week that it could execute and clear futures an options that are based on commodities like corn, live cattle, or heating oil. Until now, the Fed has allowed banks to only in contracts pegged to financial instruments like Treasury bonds, foreign currencies, or gold.

The move significantly broadens the range of futures activity in which bank holding companies are allowed to participate.

"Banks involved in these activities have been watching and waiting and hoping for this decision," said Margery Waxman, senior partner at Sidley & Austin. "This is a major step for the Federal Reserve Board."

Foreign Banks Most Affected

In particular, the approval is expected to aid foreign banks. Domestic holding companies have been able to participate in these markets through national bank subsidiaries, which already have approval to participate in nonfinancial futures markets.

The order lets Bank of Montreal serve as a futures commission merchant in 16 kinds of futures and options. It permits trading on the Chicago Board of Trade and the Chicago and New York Mercantile exchanges, for institutional customers only.

Fed officials are planning to propose adding the contracts to the list of permissible nonbanking activities. Until then, companies wanting to follow Bank of Montreal's lead must still apply for Fed approval.

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