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Trading Reform Tops Futures Industry’s Agenda

March 6, 1990

CHICAGO (AP) _ The panic in the pits has passed but not the ensuing push for commodity market reform, a sensitive subject that is foremost on the minds of futures brokerage executives meeting this week in Florida.

Last year’s Futures Industry Association meeting was a tense affair despite the traditional tropical setting as brokerage and exchange officials fretted over the revelation two months earlier of a trading fraud investigation at the Chicago Board of Trade and the Chicago Mercantile Exchange.

Since then, 48 people have been indicted and 16 have pleaded guilty to federal charges of cheating customers, and FIA leaders say the futures industry has stabilized.

″I think it’s much more relaxed this year,″ said David Vogel, chairman of the New York-based trading company LIT America Inc. and vice chairman of the FIA, a trade association headquartered in Washington with about 270 member firms.

The 1,200 people attending this year’s FIA annual meeting in Boca Raton, which begins Wednesday, expect to hear from lawmakers, federal regulators and exchange officials on their progress toward restoring public confidence in the futures markets.

Despite its problems, Vogel said the futures industry is healthier financially than the layoff-riddled securities industry.

Futures are contracts to buy and sell agricultural commodities and financial instruments at a price agreed upon before the delivery date.

FIA Chairman David Ganis said talk about congressional reauthorization of the Commodity Futures Trading Commission, the federal regulator of futures trading, is likely to dominate the meeting. At least 18 members of Congress, including some who have proposed reform measures, are expected to speak at the convention, most of them on Saturday.

One of the most hotly debated reform issues in the reauthorization process has been dual trading, the practice among floor brokers of trading for their own accounts as well as their customers. Critics contend the practice invites fraud; proponents say it makes futures markets more efficient.

Last year, the House of Representatives passed a CFTC reauthorization bill that would sharply curtail dual trading until futures exchanges demonstrate an ability to detect wrongdoing ″to the greatest degree that is technologically and humanly possible.″

The Senate is expected to vote on a similar bill this spring.

CFTC Chairman Wendy Gramm will address the convention on Thursday and is likely to tout reform measures the regulatory agency is pursuing on its own, including limits on dual trading, tougher record-keeping rules and increased use of undercover CFTC staffers in the trading pits.

Leaders of the Chicago and New York futures exchanges also will attend to discuss the progress they have made on electronic trading systems that would supplement and possibly replace face-to-face trading in commodity pits. Several exchanges also are working on hand-held electronic devices that would replace the paper cards on which traders record their transactions.

Ganis, president of Chicago-based Northern Futures Corp., said the Florida meeting will show there is no one-shot cure for commodity fraud but that everyone in the industry is contributing to a solution.

″We need to create an understanding that all of these actions, not just a law here, a regulation there, but all of these actions taken together will result in improved investor confidence in our markets,″ he said in a telephone interview. ″That’s the key issue.″

Exchange officials are likely to criticize the Bush administration’s budget proposal for an 11-cents-per-trade fee on futures transactions, which they say will drive business away from U.S. markets to cheaper exchanges overseas.

Other issues likely to be addressed in Florida include proposals to increase the margin, or down payment, on stock-index futures and to transfer regulatory authority over stock-index futures from the CFTC to the Securities and Exchange Commission.

Both proposals stem from the perception that computer-driven program trading techniques involving index futures inject harmful volatility into the stock market. Futures exchange leaders say that perception is erroneous.