Release: #4076-97

For Release: November 7, 1997

CFTC ISSUES ORDER GRANTING CME A DUAL TRADING EXEMPTION FOR THE S&P 500 FUTURES CONTRACT MARKET AND A PROPOSED ORDER GRANTING CME CONDITIONAL DUAL TRADING EXEMPTIONS FOR SEVEN OTHER HIGH-VOLUME CONTRACT MARKETS

The Commodity Futures Trading Commission (Commission) has issued an Order granting the Chicago Mercantile Exchange (CME or Exchange) an unconditional dual trading exemption for its S&P 500 futures contract market. The Commission has determined that the S&P 500 futures contract market meets all of the standards for a dual trading exemption as set forth in the Commodity Exchange Act (Act) and Commission regulations. Specifically, the Commission has found that, with respect to the S&P 500 futures contract, CME maintains a trade monitoring system which is capable of detecting and deterring, and is used on a regular basis to detect and to deter, violations attributable to dual trading.

The Commission also has issued a proposed Order granting conditional dual trading exemptions for CME's seven remaining high-volume markets: Live Cattle, Deutsche Mark, Japanese Yen, Swiss Franc and Eurodollar futures contracts and the option contracts on S&P 500 and Eurodollar futures. The Commission's proposal to grant conditional exemptions for these contract markets is based on the Commission's having found that the Exchange's trade monitoring system for these markets does not meet all the requirements of the Act and Commission regulations. Specifically, the Exchange has not shown that 90 percent or more of its imputed trade times are reliable, precise, and verifiable as demonstrated by being imputed within a timing window of two minutes or less and as required by the Act and Commission regulations. In this regard, the Commission notes that dual trading can afford floor brokers the opportunity to abuse customer orders if audit trail information is insufficient. Nonetheless, the Commission's review of CME's trade monitoring system indicated that CME has made progress in improving its audit trail and other elements of its trade monitoring system and has had in place for some of these markets a self-imposed, limited dual trading restriction.

The Commission has proposed that CME's audit trail deficiency must be remedied by CME's achieving the requisite level of reliably accurate trade execution times prior to the Commission's granting an unconditional exemption from the Act's dual trading prohibition. In the meantime, the Commission is proposing to order CME to maintain in effect as a condition of the exemptions a limited dual trading restriction which is less broad than the statutory dual trading ban. The proposed restriction incorporates the current CME restriction with some modifications. Overall, the proposed restriction would restrict dual trading in active contract months while not risking an impairment of liquidity in low volume contract months.

CME will have the opportunity to make both written and oral presentations to the Commission prior to the issuance of a final Order.

Copies of the Order on the S&P 500 futures contract market and the Proposed Order for the other contract markets may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.