Prohibited Floor Trading Activities Under the Commodity Exchange Act
53 Pages Posted: 7 Nov 2010
Date Written: October 1, 1989
On January 19, 1989, the Chicago Tribune published the remarkable story of an elaborate sting operation conducted by the FBI and the Office of the United States Attorney in Chicago. Undercover FBI agents had purchased seats on the Chicago Board of Trade and the Chicago Mercantile Exchange. The Tribune reported that the agents, disguised as traders, secretly recorded hundreds of conversations in the trading pits of those two exchanges. The agents leased expensive apartments and provided elaborate entertainment in order to ingratiate themselves into the club-like atmosphere on the exchange floors. The local press reported that the sting operation had uncovered widespread abuses. Indeed, in July of 1989 federal grand juries in Chicago returned indictments against forty six traders. These events have focused widespread attention on the floor trading practices of the commodity futures exchanges. This article reviews the nature and background of the federal regulatory scheme imposed on trading activities on the floors of the commodity exchanges. The article discusses the need for a better “audit trail” to uncover trading abuses and examines the phenomenon of “dual” trading in which floor brokers execute orders for customers as well as for their own accounts, creating potential conflicts of interests. The article also reviews cases that have raised trade practice issues and discusses the appropriateness of reforms that have been suggested as a result of the Chicago sting operation.
Keywords: Chicago Sting Operation, Chicago Board of Trade, Chicago Mercantile Exchange, traders, Floor Trading, Practices, Commodity Futures, Exchange, Abuses, Dual Trading, Regulation, Time Stamping, Scandals
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