Chicago Futures Market:

Initial Observations on Trade Practice Abuses

GGD-89-58: Published: Mar 13, 1989. Publicly Released: Mar 13, 1989.

Additional Materials:

Contact:

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

In response to a congressional request, GAO reviewed how the Commodity Futures Trading Commission (CFTC), Chicago Board of Trade (CBT), and Chicago Mercantile Exchange (CME) oversee futures market trading practices, focusing on the: (1) adequacy of oversight controls; (2) disciplinary actions the exchanges have taken; and (3) market reforms the exchanges have considered or implemented.

GAO found that: (1) CME and CBT identify and investigate trade practice abuses using similar programs, including reviewing audit trails for trade information; (2) the CFTC oversight program includes reviewing data from exchange audit trails, investigating potential trade abuses, and reviewing rule enforcement; (3) CFTC requires exchanges to determine trade execution times within 1 minute, and the resulting enhanced computerized audit trails have improved trade abuse detection and investigation; (4) due to the large numbers of trades at different prices within 1 minute, CFTC may need to reduce the 1-minute standard; and (5) CBT improved the usefulness of audit trail data by more precisely timing trades in response to CFTC recommendations. GAO also found that: (1) the number of penalties for trading violations increased at CME, while CBT penalties fluctuated; (2) CME fines ranged from about $155,000 to about $1.7 million and totalled about $3.6 million from 1984 through 1988, while CBT fines ranged from about $65,000 to $225,000 and totalled $812,000 during the same period; (3) both exchanges averaged about two expulsions per year; and (4) CFTC enforcement actions since 1986 resulted in over $900,000 in penalties, 35 cease-and-desist orders, 43 trading suspensions, and 31 registration suspensions. In addition, GAO found that: (1) both exchanges formed committees to study how to reduce abusive trade practices and reform exchange rules and procedures; and (2) exchange officials stated that, although some proposed changes could reduce trade practice abuses, they could increase trade costs, reduce liquidity, and undermine market efficiency.

Jul 25, 2016

Jul 5, 2016

May 6, 2016

Apr 21, 2016

Apr 18, 2016

Apr 12, 2016

Mar 28, 2016

Mar 8, 2016

Feb 16, 2016

Jan 27, 2016

Looking for more? Browse all our products here