85 Nw. U. L. Rev. 748 (1990-1991)
Good Concept, Bad Executions: The Regulation and Self-Regulation of Automated Trading Systems in United States Futures Markets

handle is hein.journals/illlr85 and id is 766 raw text is: Copyright 1991 by Northwestern University, School of Law              Printed in U.S.A.
Northwestern University Law Review                                      Vol. 85, No. 3
GOOD CONCEPT, BAD EXECUTIONS: THE
REGULATION AND SELF-REGULATION
OF AUTOMATED TRADING
SYSTEMS IN UNITED STATES
FUTURES MARKETS
Michael B. Sundel*
Lystra G. Blake**
I. INTRODUCTION
On January 19, 1989, the Chicago Tribune's front page trumpeted
the news that the Federal Bureau of Investigation (FBI) had been con-
ducting a two-year undercover investigation of floor trading practices at
the world's two largest futures exchanges: the Chicago Board of Trade
(CBT) and the Chicago Mercantile Exchange (CME). In the days
that followed, as additional reports detailing the extent of the probe ap-
peared in the news media, the knowledge that FBI agents posing as floor
traders had uncovered alleged evidence of widespread fraud against cus-
tomers quickly spread.
Barely three weeks after the disclosure of the Chicago investigation,
the Commodity Futures Trading Commission (CFTC) unanimously
approved the CME's proposal to list certain futures contracts2 for over-
night trading on Globex, an automated trading system developed jointly
* International Law Counsel, United States Postal Service; formerly Staff Attorney, Commodity
Futures Trading Commission. B.A. 1981, Yale University; J.D. 1984, Harvard University; M.A.
1988, University of Michigan.
** Trial Attorney, Criminal Division, United States Department of Justice; formerly Staff Attor-
ney, Commodity Futures Trading Commission. B.A. 1977, New York University; J.D. 1981, Ge-
orgetown University. The views expressed in this Article are the authors' own and do not
necessarily reflect the views of their current or former employers.
1 Chicago Tribune, Jan. 19, 1989, at 1, col. 6.
2 The CFTC defines futures contract as [a]n agreement to purchase or sell a commodity for
delivery in the future: (1) at a price that is determined at initiation of the contract; (2) which obli-
gates each party to the contract to fulfill the contract at the specified price; (3) which is used to
assume or shift price risk; and (4) which may be satisfied by delivery or offset. CFTC, THE CFTC
GLOSSARY: A LAYMAN'S GUIDE TO THE LANGUAGE OF THE FUTURES INDUSTRY 29 (1990) [here-
inafter GLOSSARY]. The CFTC defines option as [a] unilateral contract which gives the buyer
the right to buy or sell a specified quantity of a commodity at a specific price within a specified
period of time, regardless of the market price of that commodity. Id. at 43. For simplicity, this
Article refers to an exchange on which both futures and options are traded as a futures exchange.

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