This article appeared in the Chicago Sun-Times
Monday, December 20, 1999
20TH CENTURY CHICAGO
Stormy year for traders
BY LEO MELAMED
YEARS IN 100 DAYS Today: Leo Melamed (left) is chairman emeritus
and senior policy adviser to the Chicago Mercantile Exchange
and CEO of Sakura Dellsher, a commodities firm. Tuesday: Sun-Times
staff reporter John Carpenter describes how the last decade of
the 20th century opens in 1990 with Comisky Park being demolished,
a tornado hitting Plainfield and the 708 telephone area code
going into effect.
For Chicago and arguably for its primary economic engine - the
futures exchanges - 1989 began with the winter of despair. No question
about it. Chicago's winter storms are world class, and 1989 was
But that year, January also brought a storm of federal agents
with subpoenas in hand upon the homes of futures traders.
This culminated a two-year investigation of trading on the floors
of the Chicago Board of Trade and the Chicago Mercantile Exchange.
FBI agents, posing as traders with hidden tape recorders, had penetrated
the trading pits of both exchanges and allegedly found evidence
of major wrongdoing.
Both the local and national media had a field day reporting on
the so-called Operations Hedgeclipper and Sourmash.
This sad chapter in media coverage caused the spread of baseless
accusations, rumors and innuendoes. Our traders were presumed guilty
even before a shred of credible evidence was available for scrutiny.
In April, Chicagoans turned their backs on the winter of despair
and overwhelmingly elected Richard M. Daley mayor of the city that
had become synonymous with his family name.
At the age of 46, the eldest son of the former Richard J. Daley,
having completed three terms as Cook County state's attorney, became
the fifth chief executive in a decade. He and his wife, Maggie,
told their supporters that to thank the citizens of Chicago, they
would do their very best in the years ahead. They did just that.
Daley's election signaled a rejection of the age of foolishness
and a return to the age of wisdom. As the strife at City Hall of
previous years became a distant memory, as Chicago resumed its
role as the city that works, so ceased the unwarranted attacks
on Chicago futures exchanges.
After two years of intense investigation of more than 6,000 brokers
and traders, after the disruption of a nationally vital industry
for almost a year, after months of media blitz, after some 500
subpoenas were issued and as many interviews held, and after the
review of more than a million documents, a mere handful of traders
were found guilty, mostly for misdemeanors(1).
The investigation turned out to be a colossal government fiasco
and a huge waste of taxpayers' money. By the end of 1989, the integrity
of Chicago futures traders were vindicated, the eminence of our
markets was restored, and our membership values resumed their record
Not only was the FBI sting rebuffed, the brutal attack on our
markets in the aftermath of the 1987 stock market crash was equally
discredited. The myriad academic and government studies that probed
the cause of the crash unequivocally proved to the financial world
that the Chicago futures exchanges were exemplary in providing
an indispensable modern risk management mechanism for hedging and
trading, especially during moments of crisis and upheaval.
As a result
Chicago - and its exchanges - rose in prominence and importance.
Indeed, the Chicago Mercantile Exchange, home of the world's
most liquid stock-index instrument, the Standard & Poor's
500 contract, for the first time in its history equaled the prestige
of the New York Stock Exchange.
(1) There were 46 convictions of which only
10 were incarcerated, representing a tiny fraction of the total
CBOT and CME membership.
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