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Chicago Merc Proposes Reforms to Limit Floor Trading Abuses

March 28, 1987|Associated Press

CHICAGO — In a move to halt alleged abuses, the Chicago Mercantile Exchange said Friday that it wants to restrict trading among broker groups and assess fines of up to $50,000 for breaking its rules.

Exchange President William Brodsky said the proposed restrictions would reduce broker networks, a now common practice in which pit traders direct many of their personal trades to the same groups of brokers.

Some traders outside the broker groups charge that the networks cheat their customers and limit competition. Brodsky said the broker groups enable customers to trade in several pits at the exchange through one group, instead of having to work out agreements with several independent traders.

"The broker groups provide a very valuable service," Brodsky said. "We just want to keep it fair."

The new restrictions and proposed fines were outlined in a memorandum distributed to members Thursday on the exchange's bustling floor where brokers trade stock-index futures, pork bellies and other commodities.

Brodsky said the regulations on broker groups were unanimously approved by the exchange's Board of Governors last week as part of a package of proposed trading reforms.

The rules would ban brokers from making more than 15% of their personal trades with other members of the same group. Violators would be fined up to $50,000 for each infraction and repeat offenders would risk suspension from floor trading or even expulsion from the exchange.

Traders also would be prohibited from directing more than 25% of their customers' orders to fellow broker group members. Violators would be fined from $1,000 to $10,000 for successive infringements, Brodsky said.

"We're not only proposing rules that we think make sense, but we're going to enforce them stringently," Brodsky said.

Another proposal would ban dual trading by brokers who stand on the top step of the terraced Standard & Poor's 500 stock-index futures pit. Dual trading involves brokers who trade for customers and for their own personal accounts at the same time.

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