CME Group Inc.
) was sued by 24 brokers and traders of the Chicago Board of Trade
("CBOT") last Friday. This was in protest of its declaration of
doing away with the "open-outcry trading pit system" pertaining to
agricultural trading and opting for a new process. The change was
scheduled to be effective from June 25 after being postponed due to
several oppositions since December last year.
The new procedure, as planned by the company, would discard
open-outcry with the electronic trading information using a common
algorithm. As a result, in anticipation of a negative impact, there
was a sharp drop in volumes being traded.
This change may threaten the role of floor traders and many
fears that they will lose their job if this change is brought into
effect. However, this initiative undertaken by the CME Group is an
effort to keep the exchange at par with the requirements of the
federal Commodity Exchange Act and Commodity Futures Trading
If CME Group is found guilty, it would have to compensate for
the damages in monetary terms. Further developments are expected to
throw more light on the issue as the company continues to confront
hurdles for entering the electronic trading platform along with
intense competition, which has been affecting both volume and
pricing of the exchange.
The company's closest competitor,
Nasdaq OMX Group Inc.
), also faced the wrath of one of the IPO investors, who questioned
NASDAQ's failure to process orders to buy, sell or cancel requests
) shares on time, causing them to suffer losses. The investors hope
to obtain a class action status for a case filed against the
company regarding this. The latter had tried to order and then
cancel requests for Facebook shares but was unable to do so, owing
to the technical glitch in the trading platform.
CME Group currently retains a Zacks #4 Rank, which translates
into a short-term Sell rating. We are also maintaining our
long-term Underperform recommendation on the shares.
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