Jeff  Carter

CME($CME) is getting some bad press from this whole MF Global fraud disaster. Reuters headline sums it up correctly, “tarnished”.

For me, it is a tremendously sad time. I was a part of a group that changed CME tremendously from 1991 to 2000. Initially, the effort began with a ban on dual trading. In financial pits, a minority of brokers were trading against the deck-in stock parlance it would be called internalizing order flow. We did a survey, and found the largest traders weren’t the largest locals(traders trading their own money) in the pit, but were order fillers! This seemed weird to the locals, since we were taking the risk and making the markets.

We gathered signatures on petitions. Many brokers wouldn’t trade with us, cutting our income. We got enough momentum that we forced an exchange membership vote. We won. Dual trading was banned. CME was the only exchange in the world that banned it. Volume didn’t suffer. It grew. Customers felt like they were getting a fairer shake.

Even pits that had volume thresholds under the dual trading ban levels had a cultural change. Instead of screwing over customers, brokers and locals made sure they were taken care of. Many a time I saw a broker fight tooth and nail for their order on a price print that got into time and sales. 99.9% of the time, the customer behind that order was faceless to the broker. But the broker put his reputation and money on the line for that customer to make it right.

I saw locals go out of their way to make sure the customer came first, losing money for themselves in the process. No doubt, the trading floor was the most competitive place on earth-but the culture at CME changed. We took care of the outside customer.

There was a huge political fight within CME in the mid-nineties. The CME board was controlled by brokers, and they weren’t spending a lot of money on computerized infrastructure. In monetary terms, a full seat at the CME traded close to a million dollars in 1994. By 1998, that same seat traded $280,000. It was an outward symptom of the political fight, and sea change that was going on in the industry both inside and outside our walls.


Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.