Release: #4075-97

For Release: November 7, 1997


The Commodity Futures Trading Commission (Commission) has issued a proposed Order granting the Chicago Board of Trade (CBT or Exchange) conditional dual trading exemptions for the Exchange's 13 high-volume contract markets: Wheat, Corn, Soybean, Soybean Meal, Soybean Oil, U.S. Treasury Bond, 10-Year Treasury Note, and 5-Year Treasury Note futures contracts and the option contracts on the Corn, Soybean, U.S. Treasury Bond, 10-Year Treasury Note, and 5-Year Treasury Note futures. The Commission has determined that CBT's trade monitoring system for its high-volume contract markets does not satisfy all of the standards set forth in the Commodity Exchange Act (Act) and Commission regulations.

Although the Commission's review of CBT's trade monitoring system indicated that CBT has made progress in improving its audit trail and other elements of its trade monitoring system, the Commission has found several deficiencies in that system. Specifically, the Commission has determined that CBT's audit trail and recordkeeping systems and the Exchange's physical observation of trading areas are deficient. In this regard, the Commission notes that dual trading can afford floor brokers the opportunity to abuse customer orders if audit trail information and surveillance are insufficient.

With respect to CBT's audit trail, the Exchange has not shown that 90 percent or more of its imputed trade times are reliable, precise, and verifiable as demonstrated by being imputed within a timing window of two minutes or less as required by the Act and Commission regulations. The Commission also found that CBT's recordkeeping system is deficient because the Exchange fails to comply with the Act and Commission regulations in that only 67 percent of trading cards reviewed by Commission staff were submitted to the clearing member within 15 minutes of the 30-minute trading interval and timestamped promptly to the nearest minute following collection. Regarding the physical observation of trading areas, the Commission concluded that CBT does not conduct daily floor surveillance on the open and close for each high-volume contract market to the extent practicable as required by Commission regulations.

The Commission has proposed that these deficiencies must be remedied by CBT's achieving the requisite levels of compliance with the relevant standards prior to the Commission's granting an unconditional exemption from the Act's dual trading prohibition. In the meantime, the Commission is proposing to order CBT to implement and to maintain in effect as a condition of the exemptions a limited dual trading restriction which is less broad than the statutory dual trading ban. Overall, the proposed restriction would restrict dual trading in active contract months while not risking an impairment of liquidity in low volume contract months.

CBT will have the opportunity to make both written and oral presentations to the Commission prior to the issuance of a final Order.

A copy of the proposed Order may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.