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CBOT Traders Ask Court to Block Trade Settlement Rules

A group of Chicago Board of Trade brokers and traders who practice the traditional method of completing trades with shouting and hand signals are asking an Illinois judge to block new settlement rules they claim hurt their livelihoods.

A change that took effect in June 2012 introduced algorithms that blend electronic trade information with the old-fashioned open pit outcry method for agricultural trade price settlements.

That change “will, for all practical purposes, eliminate the open outcry pit-based system in which the plaintiffs and their businesses trade,” George Sang, a lawyer for about 20 opponents of the new system, said in a filing in state court in Chicago. He also said their rights as board shareholders were being violated.

Cook County Circuit Judge Jean Prendergast Rooney in Chicago is scheduled today to start a four-day hearing on the challenge to the new rules.

Besides the Board of Trade, defendants include its parent company, Chicago-based CME Group Inc. (CME), Chairman Terrence Duffy and Chief Executive Officer Phupinder Gill.

Attorneys for the defense said in a court filing that the change was made to ensure settlement prices reflect “the full breadth” of market activity.

Amend Rules

They also denied the claim by the group of brokers and traders that the rule change breached their contractual rights,

“CBOT, not its members, is empowered to make and amend its rules,” the defense lawyers said.

Members only get a right to vote on those changes if they’re specifically enumerated in its certificate of incorporation, the defense attorneys said in a September 2012 court filing.

The organization made the change to ensure the exchange is “consistent” with the federal Commodity Exchange Act and with Commodity Futures Trading Commission requirements, CME Group spokeswoman Laurie Bischel said in a phone interview last year.

“We believe that the new settlement methodology accurately captures contract value across both open outcry and electronic trading during the settlement period,” she said, adding it is “fully consistent” with CME Group’s functions as a designated contract market and derivatives clearing organization.

While a state court judge previously handling the case, Lee Preston, last year denied the bulk of a defense request for judgment in their favor, he rejected the traders’ breach of contract claims against Duffy and Gill and breach of fiduciary duty claims against the corporate defendants.

The case is McKerr v. The Board of Trade of the City of Chicago, 12CH23185, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at

To contact the editor responsible for this story: Michael Hytha at

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