CHICAGO Nov 1 CME Group Inc Chief
Executive Phupinder Gill on Friday denied that the
exchange-operator changed its settlement rules to give
electronic grain traders an advantage over veterans of the
Chicago trading floor, who have sued the company, saying its new
rules are killing their business.
Gill testified as the trial opened in a lawsuit filed by
traders who work in the open-outcry pits on the Chicago Board of
Trade's 140-year-old agricultural trading floor. They sued CME
in June 2012 to halt new end-of-day settlement rules that
factored 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. CME, the largest U.S.
futures market operator, owns the CBOT.
The settlement methods were changed "to reflect where the
activity took place," in electronic markets, Gill said in
response to a question by the plaintiffs' attorney on the first
day of a trial over the rules in Chicago.
The U.S. Commodity Futures Trading Commission, which
oversees CME and the CBOT, expressed concerns about the practice
of basing end-of-day settlement prices solely on open-outcry
activity, he told Cook County Circuit Court Judge Jean
"Market integrity was going to be at risk" if the rules were
not changed, Gill said in reply to a question by the defense. He
noted that the pit-based settlement procedures were not in
violation of CFTC rules.
Open-outcry traders sued to reverse the revised rules and
have argued CME should not have implemented the new methods
without a vote of approval by a majority of certain holders of
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
A handful of traders attended the trial, two wearing the
distinctive trading jackets worn in open-outcry pits.
The impact of the revised rules was "to move all of the
volume that was sacred to the pit, the closing volume, to the
machines," said George Sang, a lawyer for the traders.
During the three weeks before the new rules took effect in
June 2012, open-outcry trading accounted for 53 percent of the
volume during the close of trading in the CBOT corn market, Sang
said. During the three weeks after the change, 10 percent of
closing volume was executed in the pit, he said.
Anthony McKerr, a plaintiff in the case and a trader in
CBOT's corn futures pit, testified that his income had dropped
more than 80 percent because of the revised rules.
Before the change, floor traders had already seen business
dwindle during the past seven years as a vast majority of
trading has migrated to electronic platforms.
Lawyers for CME said it did not need members to vote on the
settlement rules. And the new methods did not encourage
customers to trade in electronic markets as opposed to the pits,
said Al Hogan, a lawyer representing the exchange operator.
Gill, a colorful executive who cracked a joke about his age
while on the witness stand, said CME had made a commitment to
maintaining open-outcry trading because some volume still flow
through the pits.
As CME lawyers thanked him for coming to court, he said, "My
pleasure. Let's not do it again."
The trial is set to resume on Monday.