Word: merceds
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Word of the sting prompted widespread soul-searching on the normally ebullient trading floors of the Merc and the Chicago Board of Trade. "There's paranoia in the pits today," said a futures trader. "Nobody knows just how much the feds have got and against whom." Several panicky traders who reportedly had been subpoenaed sold their exchange seats, including one on the Merc that went for only $330,500, a sharp drop from the previous sale at $380,000 only a week earlier. Many traders worried about what the scandal might cost Chicago's booming markets in terms of lost...
Originally set up more than 70 years ago to help farmers hedge their bets on the future of their crops, the Merc and the Board of Trade grew explosively during the 1980s by offering futures contracts on everything from foreign currencies to precious metals. But for all their sophisticated new financial products, the exchanges still use the old-fashioned, face-to-face auction system of making trades. The leader of the investigation, Anton Valukas, the U.S. Attorney for the Northern District of Illinois, apparently decided that the system left plenty of room for rip-offs of commodities buyers...
...index futures in Chicago can create fearsome volatility, agreed to impose restrictions when prices begin falling out of control. One safeguard will be a "shock absorber," a half an hour price floor that will go into effect on the Standard & Poor's 500 index whenever it drops on the Merc by the equivalent of about 96 points on the Dow Jones average. Under even more stormy conditions, if the Dow drops 250 points, a "circuit breaker" would halt trading for one hour on both the Big Board and in the Merc's S&P futures...
...have their own advocate. At present, the CFTC sticks up for the Chicago markets whenever the SEC tries to fence them in. Earlier this month the CFTC approved two new forms of stock-index contracts -- the first authorized since the crash -- bringing the total number to 18. The Chicago Merc hopes to get approval soon for a futures contract to be based on the Tokyo exchange's Nikkei 225 stock index...
...stock-index futures market is currently suffering from depressed volume, down some 50% on the Chicago Merc compared with May 1987, partly because several major New York investment firms have halted index-arbitrage for their own accounts. While the firms did so largely as a public relations move to calm investor fears, most of them continue to conduct program trading to satisfy customers whose money they manage. Says Max Chapman, president of Kidder, Peabody: "Speculation is not a dirty word...