Chicago’s futures exchanges are on thin ice as they prepare to do battle with federal regulators who want to ban dual trading.
To be sure, exchange members don’t like the Commodity Futures Trading Commission telling them what to do.
Trouble is, in this case the regulators have targeted a practice that many members also would be happy to eliminate.
Critics blame dual trading for fraud. Brokers who are allowed to handle their own accounts while also filling customer orders have a clear conflict of interest, they say.
Yet among exchange members, fraud barely registers as an issue. What counts is trading opportunity for independent locals, who handle only their own accounts.
If brokers lose the privilege of trading for themselves in active contracts, as the CFTC has proposed, locals stand to benefit by filling the breach. More trades for locals means more chances to make money.
That helps explain why Chicago Mercantile Exchange members voted in 1990 and again in 1992 to ban dual trading in most active pits.
The Chicago Board of Trade has never put the issue to a vote, but some senior members say they believe the results would be similar to the Merc’s one-sided ballots: Locals far outnumber brokers at both exchanges.
Of course, even for locals it’s not solely a pocketbook issue. At the Merc, some say the dual-trading ban has divided the membership.
Brokers miffed by the restrictions began cutting out locals by trading more with other brokers. Locals retaliated by limiting the percentage of trades that could be done within broker groups.
That tiff coincided with a long decline in the Merc’s fortunes. The vote might be closer if another referendum were held today.
Still, as exchange bosses head to Washington to argue for dual trading, they must at least suspect their members are hoping the regulators will dismiss them. A summit meeting with CFTC Chairman Brooksley Born is scheduled for Monday.
Learning experience: The Merc has uncovered an alleged scam involving its tuition reimbursement program, exchange sources said Monday.
Nine Merc staffers have been accused of stealing some $240,000 over the last several years. They supposedly were paid back for college classes they never attended, the sources said.
Until recently, internal audit procedures failed to detect documents that were allegedly phony. The Merc has dismissed the employees, and plans to prosecute, the sources said.
Exchange brass feel stung. “You’re trying to do something good for people,” griped one member. Still, the Merc plans to continue its reimbursement program, albeit with tighter audits. An exchange spokesman declined to comment.
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Green beans: Traders in the South Loop can now park their Porsches on the soybean floor.
A new “Traders Self Park” near the Board of Trade and the Chicago Board Options Exchange at 326 S. Wells is trying to attract business by appealing to the familiar.
To help traders remember where they left their cars, each floor is identified by a color and commodity: Floor two is beige for wheat, and floor six green for soybeans. Elevator call buttons are marked with a bull for up, and a bear for down.
So each morning, superstitious traders will be pushing a bear on their way to work? Sell!
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