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.
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