CME PROPOSES LIMITS ON BROKER TRADING RINGS
The Chicago Mercantile Exchange (CME)
has proposed stringent limits on the portion of futures trading
that can be conducted between "trading rings," or  affiliated
groups of floor brokers, according to a CME spokesman.
    Violators would be subject to fines of as much as 50,000
dlrs, the exchange said in a letter distributed to its members
earlier this week.
    The proposal is one of the reforms the exchange's Board of
Governors suggested to curb practices that have come under fire
for unfairly limiting competition on the floor. Local traders
claim that trading among broker "rings" violates the
open-outcry system prevailing in the futures markets.
    Limits on ring trading would be applied floor-wide under
the proposal. The other reforms, which address dual trading,
would apply only to the Standard and Poor's 500 stock index
futures pit.
    A debate over dual trading, the practice of trading for
one's own account and filling customer orders, has arisen
because many traders believe it can create a climate for
trading abuses, especially in the extremely volatile stock
index futures pit.
    Adoption of the Board of Governors' reforms hinges on an
April 13 vote of CME members on a membership petition, signed
by several hundred members in February, that would bar all dual
trading at the exchange.
    Defeat of the petition is likely, according to a floor
broker contacted by Reuters, who also said he welcomed the
limits on the "ring" traders. If members reject the petition,
that would open up the way for the Board of Governors' reforms.
    CME President William Brodsky said the need to curb broker
group trading has grown "as the groups have gotten larger." "A
lot of the individuals were losing business because they were
faced with a large-scale competition. The Board began studying
the problem about six months ago.
    Under the proposed reforms, members of a broker rings --
defined as brokers who share brokerage fees, revenues,
expenses, a deck of customer orders or employee salary expenses
-- would be barred from trading more than 15 pct of their
personal trades with each other. Those found in violation would
be subject to fines of up to 50,000 dlrs.
    Broker ring members would also be prohibited from trading
more than 25 pct of customer orders with each other. Fines of
up to 10,000 dlrs would be levied on violators.
    More stringent limits were proposed on individual trading
than customer orders because "we don't want to negatively
impact customer orders," Brodsky said. "On the other hand, the
need to do a personal order is very different."
    Broker associations would also be limited to having no more
than one member serving on an exchange disciplinary or pit
committee.
 Reuter
