Senate Bill Would Give CFTC More Clout to Battle Abuses

A Senate bill introduced Thursday would give the Commodity Futures Trading Commission more power to curb trading abuses and would make brokerage firms liable for customers’ losses caused by illegal transactions.

The bill, which contains stricter proposals than those in a House-approved version, was introduced in response to futures trading violations uncovered by a recent Federal Bureau of Investigation probe at two Chicago futures exchanges.

The proposed legislation aims to increase brokerage firms’ accountability by making them liable for damages if clients’ money is lost through improper trading.

The Futures Trading Practices Act of 1989 was sponsored by Agriculture Committee Chairman Patrick Leahy, (D-Vt.), and Sen Richard Lugar, (R-Ind.)

In July, 45 traders and a clerk at the Chicago Mercantile Exchange and the Chicago Board of Trade, the largest U.S. commodity exchanges, were indicted as a result of the probe.

The bill would allow the CFTC to conduct undercover probes and requires fingerprinting and FBI background investigations of futures traders before they are registered with the CFTC.

“Any floor trader caught cheating will be severely punished and any exchange not policing its floor will be forced to clean up its act,” Leahy said.

The senators said the bill would authorize an increase in the CFTC’s funding to $66 million in fiscal 1994 from $41 million in 1990. This would allow the hiring of additional staff to monitor trading at exchanges.

The bill would require U.S. exchanges to keep more precise records of transactions and it gives them three years to put new bookkeeping practices into effect.