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Federal law requires that traders and brokers must try to get the best possible price for their customers when executing trades. But because the deals are conducted orally, illegal trades are difficult to catch. When four FBI agents masqueraded as commodities dealers, however, they were able to secretly tape-record the transactions taking place at the Board of Trade and ! the Mercantile Exchange.
One typical shady deal they are believed to have detected is the "bucket trade," in which a broker slices an extra profit margin by buying a contract from a confederate at a bit more than the going price in the pit, or selling one for a bit less. For example, if a customer asks the broker to sell a soybean contract of 5,000 bushels and the market price is $7.50 per bushel, the crooked broker may sell the contract to a colleague for $7.40. That gives the colleague a discount of 10 cents per bushel, or $500, some of which he kicks back to his partner. The customer probably cannot challenge the price because there is no record of precisely when the deal occurred.
The undercover agents recorded their information not just in the hurlyburly of the pits but on social occasions as well. Two feds working the Board of Trade solicited stories about illegal trades by throwing lavish parties in their high-rise apartments and by joining the posh East Bank Club, a gym popular with commodities brokers. One agent who called himself Richard Carlson claimed that he specialized in soybean contracts and was a native New Yorker; the other, who called himself Michael McLoughlin, said he worked the Treasury- bond pit and was from Florida. "Both were nice guys, pleasant, friendly," recalls a trader. "Now that I think of it, they asked an awful lot of questions, but I thought it was just eagerness to learn."
The biggest fear among law-abiding Chicago traders and brokers is that evidence of shady dealings will inspire Washington to clamp down on the freewheeling markets. Already Texas Democrat Kika de la Garza, chairman of the House Agriculture Committee, plans to investigate the Chicago exchanges. Congress could decide to beef up the relatively tiny agency that oversees the Chicago markets, the Commodity Futures Trading Commission, or transfer the authority to the Securities and Exchange Commission. "Figuratively speaking, at least," laments a futures broker, "there'll be police in the pits from now on."