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CFTC Commissioner Unfazed By Criticism of Dual-Trading Plan

June 15, 1990

CHICAGO (AP) _ Commodity Futures Trading Commissioner Fowler West was unfazed by a pair of studies concluding the CFTC’s proposed curbs on dual trading are based on flawed research methods and insufficient data.

″You could probably go on and on and on and on and find academics who would quarrel with certain conclusions and methods,″ West said Thursday after the studies’ authors presented their findings to the CFTC staff in Washington.

″Their objections seem to me to be highly technical in nature,″ West said in a telephone interview from his Washington office.

The studies by researchers at the University of California at Berkeley and Duke University were funded by the nation’s eight major commodity exchanges, whose leaders are fighting the CFTC plan.

The findings may provide the exchanges with more ammunition with which to defend dual trading, the controversial but legal practice among floor brokers of trading for their customers’ accounts and their own at the same time.

West said the objections would be considered along with other public comments the CFTC has gathered since announcing its proposal in January. The public comment period ends July 9.

Critics contend dual trading provides opportunities for brokers to cheat their clients. But exchange leaders say the practice increases market liquidity and cost efficiency.

A study of dual trading conducted last year by the CFTC disputed the purported economic benefits of dual trading.

The CFTC in January proposed a test ban on dual trading in certain markets, a move the exchanges viewed as the first step toward outlawing the practice.

The exchange-sponsored studies examined the process that led to the CFTC proposal and found it flawed.

The Duke researchers’ complaints included accusations of measurement errors and inconsistencies in the CFTC study. The Berkeley analysis said the CFTC failed to weigh dual trading’s benefits against the costs and ignored its functional effects on markets.

″These deficiencies undermine the study’s conclusions as well as its use as a basis for dual-trading curbs,″ the researchers said.

Their conclusions were in a statement issued jointly by the Chicago Board of Trade, the Chicago Mercantile Exchange and six other major U.S. commodity exchanges.

The Chicago Mercantile Exchange has proposed its own, less-severe curbs on dual trading as an alternative to the CFTC plan.

Spokesman Andrew Yemma said he saw no conflict between the Merc’s proposed dual-trading restrictions and its support for the two university studies.

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