Futures Contracts

A lengthy FBI investigation into practices at the world's two largest commodities futures exchanges received a critical boost from Archer-Daniels-Midland, a major grain processing conglomerate, sources close to the case said Monday. Information about Archer-Daniels-Midland's role in the probe came as government agents continued to serve federal grand jury subpoenas Monday on brokers and traders at the Chicago Board of Trade and the Chicago Mercantile Exchange.

The Board of Governors of the Chicago Mercantile Exchange said Thursday that it had approved a proposal to allow traders to buy or sell blocks of Standard and Poor's 500 stock index futures outside the trading pit. The rule, approved Wednesday at the board's regular meeting, is comparable to rules on block buying and selling on major U.S. stock exchanges, the board said in a release Thursday.

In its first enforcement actions involving so-called hedge-to-arrive contracts, the Commodities Futures Trading Commission filed a complaint against Roger Wright of Mechanicsburg, Ohio, accusing him of fraud in the promotion and marketing of illegal off-exchange futures and options contracts and failure to register as a commodity trading advisor.

Commodities exchanges give speculators the opportunity to bet millions of dollars on the future prices of such goods as soybeans, gold, Treasury bills and frozen orange juice. The purpose of the futures exchanges is to transfer the risk of price fluctuations from people who don't want the risk--such as farmers or metals processors--to speculators who are willing to gamble on making big profits.

Drexel Burnham Lambert Inc. and a Boca Raton, Fla., investor were charged by the Commodity Futures Trading Commission on Thursday with aiding and abetting an attempt to manipulate orange juice futures prices in September, 1984. The CFTC said the administrative complaint charged Drexel Burnham with helping a customer, Louis Abrams, in a bid to push up the price of the September, 1984, frozen concentrated orange juice futures contract on the New York Cotton Exchange.

A proposed ban on box-office futures markets has survived a marathon House-Senate negotiation over the financial reform package that Congress is likely to pass next week. The provision, which was inserted after lobbying by the Motion Picture Assn. of America and others on behalf of the six major movie studios, would make box-office results only the second commodity on which futures trading is banned by law. The other is onions. Language banning box-office futures trading was included in the version of the financial reform package passed by the Senate, but not the House, leading to questions over whether it would appear in the final bill.

Richard Jaycobs spent years preparing to bring Wall Street-style speculation to the high-risk world of Hollywood moviemaking. Lawmakers in Washington don't think it's such a good idea. Jaycobs is president of Cantor Exchange, a business set up by Wall Street trading firm Cantor Fitzgerald to create a market for trading futures contracts based on box-office results. Movie investors and traders would have been able to hedge a film by betting it would underperform or increase an investment by gambling on strong ticket sales.

Early last year, when prices for computer memory chips were climbing as quickly as a squirrel up a tree, Jeff Bittner saw a good chance to make a fast buck. Bittner bought 5,000 of the tiny semiconductors for $3.50 each on a Wednesday, sold them two days later for $5 each, and pocketed a tidy $7,500 profit. Still, he regrets that he didn't hold on until the following Monday, when the price climbed another dollar.

Acknowledging that legislation backed by the six major movie studios outlawing his business is likely to pass, the head of the box-office futures market recently approved by government regulators said Tuesday that he wouldn't go down without a fight. Robert Swagger, the chief executive of Veriana, said his firm would attempt to launch its Trend Exchange, which would let investors buy and sell contracts predicting the opening weekend box-office sales of upcoming films, even if financial reform legislation is signed into law with a provision banning such contracts.

The Commodity Futures Trading Commission is "aggressively investigating" possible fraud in contracts between farmers and operators of grain storage elevators that have left the operators facing huge potential losses, the head of the regulatory agency said Wednesday. John Tull, CFTC acting chairman, told the Senate Agriculture Committee that the agency is trying to determine if so-called hedge-to-arrive contracts are illegal futures or options transactions.