“It’s a part of our history,” Bryan T. Durkin said today when asked why CME, the owner of the world’s largest futures market, would spend that money as electronic trading makes its pit markets illiquid.
Durkin testified on the fourth and final day of an Illinois state court hearing in Chicago in a case brought by 20 CBOT traders and brokers protesting a change in trade-settlement pricing methods that they say is putting them out of business.
The traders claim last year’s shift from closing prices based solely on floor trading to those blended with electronic-platform trading cost them volume and betrayed CME’s promise to maintain open-outcry trading.
They are seeking an order blocking the change so it can be put to a vote.
Testifying before Cook County Circuit Judge Jean Prendergast Rooney, Durkin said maintaining both electronic and floor-trading platforms provides exchange customers with a choice of where to do business.
Durkin is the third high-ranking CME executive to testify in the hearing. Chairman Terrence Duffy and Chief Executive Officer Phupinder Gill also have been called to the witness stand since the hearing started on Nov. 1.
The floor traders, led by Anthony McKerr, 51, of Glenview, Illinois, have told the court their trade volume and income have declined since the rule took effect in June 2012.
While traders who took the stand told Rooney they also trade electronically from the pit, they said they can’t compete on that platform with larger firms engaged in computerized high-speed trading.
Answering questions from traders’ attorney Richard Goldwasser, Durkin said that while the federal Commodity Futures Trading Commission hadn’t directly asked CME to change its pricing method, that message was implied in the regulator’s November 2011 letter to CME management and an ensuing meeting in Washington.
Also testifying today was former CBOT Chairman Charles Carey, who later served as CME Group vice chairman after the exchanges merged in 2007.
Carey told the court that after the merger he also led a board subcommittee known as the CBOT 10, which voted in favor of the price-settlement rule change before voting against it. The panel was disbanded in 2012.
Carey said the CBOT 10 reversed its position after learning it would only apply to CBOT agricultural traders and not to cattle and hog traders on the CME.
“We didn’t want this to be our final act,” he said. Knowing the full CME board would address the issue two months later, after the CBOT 10’s agreed five-year duration expired, “I kicked the can down the road,” Carey said.
Still, the former chairman said, he believed the exchange was right to change its pricing methodology, explaining he had been receiving customer complaints for three to four years.
“We had to allow electronic trades to be some part of the settlement process,” Carey said. Called to testify by CME’s lawyers, he was the last witness in the four-day hearing.
Rooney dispensed with closing arguments, telling lawyers to file closing briefs, starting with the plaintiffs’ on Nov. 20, with final reply papers due by Dec. 23, after which she will rule by mail.
Outside the courtroom, McKerr said Carey’s “kick the can” comment proved the traders’ case.
“They broke the rules,” he said.
If Rooney rules in the traders’ favor, the rule change would be subject to a vote of the approximately 1,500 members of the Board of Trade and would need to be approved by a majority of those members, not merely those who vote, to be made effective, McKerr and traders’ attorney George Sang said after the hearing.
The case is McKerr v. Board of Trade of the City of Chicago, 12CH23185, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).
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