CBOT Pit Traders Testify Volume, Profits Fell After Rule

Three Chicago Board of Trade corn pit traders told an Illinois judge that their trading volume and profits have fallen since a change in end-of-day settlement pricing was imposed last year.

The traders are part of a group of 20 who sued the CME Group Inc.-owned exchange seeking to block the shift in determining final prices, from reliance upon just the last minute of floor trading to a blended method incorporating electronic-platform trading results.

“We should have at least had a vote,” Ralph Dynek, 55, one of the suing traders, told Cook County Circuit Judge Jean Prendergast Rooney today in state court in Chicago.

Dynek and the other traders contend exchange members were entitled to a vote on the change because it adversely affects the CBOT’s stated commitment to maintain traditional open-outcry floor trading.

Lawyers for the exchange argue that the shift in pricing methods, which took effect in June 2012, was necessary to ensure the integrity of markets that were already migrating away from the commodities exchange pits and to electronic trading platforms.

The price settlement process determines who makes or loses money on the day’s trading.

“You want to get ready to play,” Dynek said of the final moments of a day’s floor trading. “To make it or lose it.”

Commitment Reiterated

The hearing before Rooney started on Nov. 1 and is scheduled to last two more days. CME Group Chief Executive Officer Phupinder Gill reiterated the exchange’s commitment to open-pit trading in testimony on the first day of the hearing.

CME Group Chairman Terrence Duffy echoed Gill’s testimony today, telling the court that the change in pricing methodology was motivated in part by a letter received from the Commodity Futures Trading Commission in November 2011.

Duffy, once an open-outcry livestock commodities trader, said the regulator wanted to know if CME Group was in compliance with the “core principles” of the federal Commodity Exchange Act.

“I felt we were,” Duffy said today. “My belief was that we were in compliance before receiving the letter” and that the company’s exchanges are now. During the intervening time, Duffy said his views on that question evolved.

“Integrity is the most important part of what we do,” he said. Ultimately he and Gill decided to impose the blended price-settlement rules on CBOT’s agricultural trade-settlement pricing even after two company boards rejected the proposal because because 90 percent of the market’s liquidity was in electronic trading, not open outcry.

The new rules weren’t imposed on the CME’s livestock traders out of concern for causing financial injury to American farmers, he said.

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

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