Mercantile Group Wants Dual Trading Back as D.C. Readies Ban

A group of Chicago Mercantile Exchange traders is mounting aneffort to end the Merc's ban on the controversial practice of dualtrading.

Getting rid of the ban has been tried before - unsuccessfully -but the latest effort to allow brokers to fill customer orders aswell as their own on the same day comes at a key time for theexchanges. Capitol Hill is poised to impose the first majorregulatory change in response to the 1989 trading scandal that rockedthe financial community.

House and Senate negotiators in Washington, D.C., are in thefinal stages of a futures-regulations bill that would officially bandual trading. And leaders of the regulatory body that governs theexchanges have said they will implement their own restrictions if thecongressional effort stalls.

In letters to Merc officials last month, a group of more than 80CME members in the Merc's Swiss franc and British pound trading pitsappealed for a lift on the ban, which prohibits dual trading inmarkets with averages of more than 10,000 contracts traded per day.

In the letters, the brokers said trading in those pits hasslowed to a crawl in recent weeks. And trading sources said theydon't expect activity to pick up before the November election.

Steve Wollack, chairman of the Merc's dual trading committee,said the committee is reviewing the request from the two tradingpits. But he doesn't expect to have a decision on the matter beforelegislators work through the futures regulation bill now pending.

"We're looking into it, starting to compile statisticalinformation. But we won't hold hearings on it until after LaborDay," Wollack said.

One trader who signed the letter urging Merc leaders to drop theban said he's doubtful the idea will pass muster in Washington, whereregulators have been trying for years to tighten restrictions on thepractice.

"It doesn't look good in my opinion right now," he said.

John T. Campo, another broker who is urging the Merc to drop theban, said he expects a meeting with Merc officials on the matterwithin the month. Until then, he said, he won't comment on theproposal.

Other traders also were reluctant to discuss the proposal. Theattitude is hardly surprising because the dual trading ban has been ahot potato at Chicago's financial exchanges since 1989, when an FBIundercover operation and subsequent fraud charges led the Merc toimpose the restriction.

Meanwhile, House and Senate negotiators are still trying to ironout differences in a futures industry regulation bill that has beenwinding through Congress since 1990.

Legislators and regulators from the Commodity Futures TradingCommission - the chief regulator to the Merc and the Chicago Board ofTrade - say the bill is finally likely to pass this week.

And if it doesn't pass, CFTC Chairman Wendy Gramm said thecommission would begin to implement its own restrictions on thepractice.

But another commissioner, Sheila Bair, said Monday she expectsthe bill will be resolved as early as this week.

Under the proposed legislation, dual trading would be banned formarkets that trade more than 8,000 contracts per day. But exchangeswith sufficient audit trails could get around the ban. Both Chicagoexchanges say their audit systems would pass the bill's test.

So if the bill passes, the Swiss franc and British pound traderswould face lighter standards for dual trading.

But if they push for an outright lifting of the restriction, theycould face a tough battle.

Late last year, brokers at the Merc launched a campaign with evenmore signatures that attempted to get the ban lifted. It failedafter two influential senators urged Merc officials not to approvethe effort.