This article appeared in the Chicago Sun-Times Monday, December 20, 1999

20TH CENTURY CHICAGO
1989

Outcry Image

Stormy year for traders

BY LEO MELAMED

Leo interview100 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 no exception.

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 climb.

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.

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     (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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