* Chicago judge denies CME request to toss traders' lawsuit
* Ruling is "big win" for grain traders -lawyer
* Judge says court must consider complicated questions
By Tom Polansek
CHICAGO, Nov 26 (Reuters) - A group of grain traders can proceed with a lawsuit to overturn new price-settlement rules at CME Group that they say are killing business in the historic open-outcry trading pits, a judge in Chicago ruled on Monday.
Cook County Circuit Court Judge Lee Preston denied a motion from CME, owner of the Chicago Board of Trade, to dismiss the lawsuit.
Al Hogan, a lawyer for CME, declined to comment after the judge issued his ruling. A spokesperson for the exchange did not immediately respond to a request for comment.
"It's a big win," said Richard Goldwasser, a lawyer for the traders.
The traders, who work in the open-outcry pits on the Chicago Board of Trade's 140-year-old agricultural trading floor, sued CME in June to halt end-of-day settlement rules that factor in transactions executed electronically, where most of the volume takes place.
Prior to the change, CME had a century-old tradition of settling futures prices for crops like corn and soybeans based on transactions executed in the pits.
The lawsuit represents the last stand for traders on the floor, who traditionally did much of their business at the close of trading and say the new procedures are making the pits irrelevant. Some believe CME wants to shut down the floor in favor of electronic trading because the pits are expensive to keep open.
The change in settlement rules "has caused a rapid, dramatic decrease in trades" for floor traders and "will eventually effectively eliminate the CBOT open outcry market for agricultural futures," according to the lawsuit.
Floor traders had already seen business dwindle during the past six years as a vast majority of trading has migrated to electronic platforms.
Traders argue CME should not have implemented the new settlement rules because they were not approved by a majority of certain holders of CBOT memberships. Instead, it was "simply adopted by arbitrary fiat" by CME Executive Chairman Terrence Duffy and CEO Phupinder Gill, according to the lawsuit.
"We're saying you can't implement it the way you did," George Sang, another lawyer for the traders, said prior to Monday's hearing. "You need to have the membership vote on it."
"COMPLICATED" QUESTIONS AHEAD
CME had said it did not need members to vote and asked the court to dismiss the traders' claims, saying settlement procedures were a matter for the industry regulator, the Commodity Futures Trading Commission.
It is important that the CFTC, instead of local courts, oversee market regulations to avoid inconsistent rulings, the CME had said.
The CFTC did not respond to requests for comment.
CME developed the new procedures with the CFTC and submitted them to the agency.
Judge Preston, in his ruling, disagreed with CME's argument that the Commodity Exchange Act (CEA), which gives the CFTC authority to establish regulations for the futures industry, pre-empts all state law claims that directly interfere with futures trading.
"It is clear that a determination as to CEA preemption requires the court to consider several complicated and context-specific questions," Preston wrote.
The lawyers will next appear before Preston on December 4 to discuss access to CME documents the grain traders want for the case.