950805

Floor plan raises

CBOT dispute to

new heights

CHICAGO: The Chicago Board of Trade's plans for a new trading floor have brought out glaring differences between local members and the big firms.

A pitched battle has arisen over plans for a new building to house financial futures trade, which calls for steep tiering of brokers' booths ringing the new Treasury bond pit.

Some say the character of the exchange is at stake, and the outcome will decide whether locals or large brokerage firms have the final say in how the exchange is run. Both say they only want is best for the exchange and its customers.

"The Treasury bond pit has always been unique because of the locals. They have always been famous for the liquidity they provided," said Thomas Baldwin, considered on of the largest local traders in the CBOT's T-bond pit.

Baldwin dismissed ideas that steeper tiering, which would allow those standing outside the pit to see his trades, would hurt him competitively. Instead, he said it would give him an advantage as it would allow him and other locals to see whole orders signaled into the pit.

Now, locals in the pit can only see orders sent to clerks standing on the edge of the pit. A local in the pit thus has no idea if the order is part of a large order, which could cause prices to move against him, or a small order.

Steeper tiering allows locals to see orders flashed into the pit, and locals could take advantage of this by trading at prices more favorable to themselves. But some argue steeper tiering will not provide customers with better prices.

Many Futures Commission Merchants (FCMs), often large firms trading for institutional clients, say they want steep tiering as it would make price activity more transparent.

Larry Mollner, executive vice president of Dean Witter Reynolds and president of the Futures Industry Association, said similar worries surfaced at CME when it built a Eurodollar pit with steep tiering but proved unfounded.

Skeptics, however, say the design has discouraged smaller locals from trading in the CME Eurodollar pit.

The issue has spilled over into exchange politics. CBOT members vote this month not only on the floor plan, but also on proposed term limits for elected officials.

A design for the new pit, approved by a CBOT subcommittee, was overriden by CBOT Chairman Patrick Arbor. One proposal calls for retroactive limits which would keep Arbor from seeking a third two-year term.-Reuter