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Shabbat Parashat Naso 5772

Ask the Rabbi: Futures Contracts of Pigs

Rav Daniel Mann

Question: Is it permitted to buy futures contracts of hogs? You are not buying pigs, but receive ‘paper’ which, if you hold it on a certain date, you will receive the hogs, but not if you sell it before that date.

 

Answer: In Living the Halachic Process (vol. I, E-6) in discussing the prohibition of commerce in non-kosher food, we touched on “ownership on paper” through the stock market. Futures trading has both elements of stringency and of leniency in relation to standard stock transactions. We will start with basic background.

The gemara derives from the pasuk, “… vesheketz yiheyu lachem” (Vayikra 11:11) that one may sell non-kosher species that come into his possession but may not make efforts to acquire and then sell them. This also applies to some other foods forbidden by Torah law (see Shulchan Aruch, Yoreh Deah 117:1).

According to most Rishonim, the prohibition of trading in forbidden foods is on a Torah level (See Shut Chatam Sofer, YD 104-106, 108; Yabia Omer VIII, YD13). The Rashba (Shut III, 223) says that the reason is to minimize the possibility of eating forbidden foods; others say it is a gezeirat hakatuv (Heavenly decree without a known reason). In any case, it has something to do with eating, as it applies only to objects that are usually owned for eating purposes (Shulchan Aruch, YD 117:1).

The consensus of poskim is that this prohibition applies as long as a Jew owns the food, even if he is not expected to come in direct contact with the food (Chatam Sofer, ibid.108). It is debatable whether holding a small amount of stocks is forbidden as partial ownership of a company (see Mishneh Halachot V, 102). Let us analyze how futures contracts differ. A futures hogs contract acquires for its buyer the, usually theoretical, right to obtain that commodity at a future date. Should this come to fruition, he will become the outright owner and controller of the pigs, which is forbidden. In this way it is worse than stocks, where one only has financial rights and not control over the company’s individual assets (a stockholder of McDonalds cannot demand 1,000 Big Macs for his shares). On the other hand, in the commodities futures markets, the average trader has no interest in obtaining the commodity but plans to sell it (hopefully at a profit) while it is still ‘on paper’ to another buyer.

Based on standard halachic rules, a futures transaction is often a davar shelo ba la’olam (something which is not presently fit to be transferred from the seller to the buyer). The pigs that an eventual buyer will get on the expiration date are usually not born at the time of most of the transactions. Although the sale takes effect based on situmta (societal consensus), the contract is not viewed legally as the sale of pigs but a commitment to provide the pigs at the specified time of delivery.

Ostensibly this resembles the Terumat Hadeshen’s (I, 200) case of a Jew who wanted to lend money to a non-Jew, using pigs as a guarantee for the loan. He suggests that this might be permitted because a Jew does not acquire ownership over collateral he receives from a non-Jew. Similarly here, a process through which he can receive pigs has commenced, but it is not clear this will happen. The Rama (YD 117:1, apparently as a chumra) says that one may not lend with forbidden food as a guarantee, which might imply that our futures sales are prohibited. However, there the problem is (see Chatam Sofer, ibid.) that the lender demanded collateral because he foresaw a situation where he would collect, with the claim that it is permitted to protect himself from loss (Rama, ibid). However, here an average trader foresees no scenario in which he will ever become the owner of the pigs. This case is not similar to that which the Torah forbade – owning and/or controlling non-kosher food sources with commercial intent. Rather, the trader is involved in a form of speculative trade on paper of mainly theoretical rights to future commodities. Therefore, from the perspective of commerce with forbidden food, it is permitted (see Pitchei Teshuva, YD 117:6).

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