Punishment of Abuses Found to Lag at CBOT

The Chicago Board of Trade may be unable to effectively detect abuses on its trading floor, congressional investigators said Thursday.

Officials of the General Accounting Office told a Senate Agriculture Committee hearing on futures trading that the Board of Trade has not punished traders for violations as rapidly as might be expected given the increase in business.

“It does start raising some questions that we believe need to be followed up,” GAO official Richard Fogel said.

The hearing was the first on the futures industry since news broke last month of a two-year FBI investigation into alleged trading violations at the Board of Trade and the Chicago Mercantile Exchange, the world’s two largest futures exchanges.

Expanded Surveillance

Board of Trade officials said the exchange has already expanded its own surveillance efforts to enforce rules and regulations.

“We have always responded well to constructive criticism and are fully committed to an intensive effort to enforce the rules and regulations of our exchange,” said Thomas Donovan, president of the Board of Trade.

Fogel said Board of Trade penalties against violators of trading rules remained relatively static between 1984 and 1988, while the number of contracts traded on the exchange rose sharply.

In 1984, 12 traders were disciplined by the Board of Trade, and 13 were disciplined in 1988, while the number of contracts traded at the Board of Trade almost doubled to 140 million in the same period. In 1986 and 1987 the number of disciplinary actions was greater.

At the Chicago Mercantile Exchange, the number of penalties rose to 105 from 13 during the same four-year period, while volume rose to 78 million from 42 million contracts, the report said.

Fogel said it is not certain that the records reveal laxity on the part of the Board of Trade, or some other factor, such as better behavior by traders.

A report Tuesday by the Commodity Futures Trading Commission, which regulates futures trading, said the Board of Trade’s monitoring and surveillance systems could allow trading violations to go undetected.

The differing records of the exchanges also could raise questions as to how closely the commission regulates the exchanges, Fogel said.