Mercantile Exchange Forms Panel to Tighten Trading Controls
The Chicago Mercantile Exchange announced creation of a panel Wednesday to strengthen control over transactions as a federal grand jury convened to hear allegations of fraud in the financial futures industry.
“It matters not whether this investigation involves one member, or many members, of the exchanges,” said Leo Melamed, chairman of the Merc’s executive committee and special counsel to the exchange’s board of governors.
“What matters is that we use this opportunity to act responsibly and make improvements where they are necessary,” he said. “There will be no sacred cows.”
The panel, which will be charged with reviewing trading procedures and practices and recommending changes where necessary, is made up of five industry officials and five former or current public officials, including former Sen. Thomas Eagleton of Missouri.
Earlier in the day, federal marshals sealed off the 16th floor of the downtown Everett Dirksen Federal Building, which in the past has been used for grand jury testimony. U.S. Atty. Anton Valukas, in keeping with office policy, would not even confirm that an investigation was under way.
200 Subpoenas
More than 200 subpoenas have been served on prominent brokers, traders and firms involved with the Merc and the Chicago Board of Trade, the world’s largest futures exchanges, according to published reports.
The subpoenaes resulted from a corruption investigation, Operation Sourmash, conducted by undercover FBI agents posing as traders. It reportedly centers on allegations that up to 100 brokers and traders cheated customers out of millions of dollars in deals on the exchange floors.
Several attorneys complained that federal prosecutors, who accompanied FBI agents during late-night visits to some traders’ homes last week, made veiled threats of confiscating property and other assets in hopes of enlisting the traders to cooperate, or provide information about others.
The attorneys, who spoke on condition of anonymity, said they were advising clients to pass up any government deals.
Initial news reports panicked trading circles and spurred quick sales of seats on the two exchanges, but by Wednesday some of the clouds cast by the probe over the two exchanges had dispersed.
The exchanges reported sales of 32 full and associate seats through midday Wednesday.
Board of Trade spokesman Mark Prout said a trend that saw the value of full seats slip steadily from $410,000 last Thursday to $375,000 Monday had ended with a standing bid Wednesday to purchase a seat at $383,000.
Caution Urged
“I’d be careful to read anything into this, especially at this early juncture,” Prout said. “There are many more things that can move the markets than a pending investigation.”
Similarly, trading volume in the soybean pits at the Board of Trade and the currency futures pits at the Merc, both apparently targeted by federal investigators, were consistent with business-as-usual projections.
