Grain traders’ suit over CME price settlement to proceed

A group of grain traders can proceed with a lawsuit to overturn new price-settlement rules at CME Group, 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 (CBOT), to dismiss the lawsuit.

The traders, who work in the open-outcry pits of the CBOT’s historic 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 that the new procedures threaten to make the pits irrelevant.

Floor traders have seen business dwindle during the past five years as a vast majority of trading has migrated to electronic platforms.

The change in settlement rules this summer "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.

Traders argue CME should not have implemented the change because it was 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, which lists the executives as defendants.

"We’re saying you can’t implement it the way you did," George Sang, a lawyer for the traders, told Reuters before the judgment. "You need to have the membership vote on it."

CME said it did not need members to vote and had 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, CME said.

The CFTC did not respond to requests for comment.

CME developed the new procedures with CFTC and submitted them with the agency.

— Tom Polansek covers agriculture and the CBOT for Reuters from Chicago.

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