CBOT Wins Appeal Against SEC On Stock Index Futures, Paving The Way To Eliminate Outmoded Shad-Johnson Restrictions

In a landmark and far-reaching court decision that will help frame the legislative debate on improving the competitiveness of U.S. futures markets, the Chicago Board of Trade yesterday won federal appeals court approval to trade futures based on the Dow Jones Utilities Average and the Dow Jones Transportation Average. A unanimous decision by the United States Court of Appeals for the Seventh Circuit overturned and vacated a July 1998 decision by the Securities Exchange Commission to deny a CBOT application to trade futures based on the DJTA and DJUA. The SEC decision was based ostensibly on the 1982 Shad-Johnson Accord that restricts the trading of futures based on stock indexes and bans outright futures on single stocks. The CBOT successfully argued the SEC decision violated the statute and was arbitrary and capricious. CBOT Chairman David P. Brennan said, "The Court of Appeals vindicated the CBOT's long-standing argument that the SEC has misinterpreted the Shad-Johnson Accord since its inception. This opinion should allow the CBOT's stock index futures complex to become even more important as risk management tools for fund managers and investors around the world." CBOT President and CEO Thomas R. Donovan said, "This decision is a victory of fairness over bureaucracy, and it is a clear message from the court that SEC limitations on stock index futures are unfair and illegal. It is time to take the handcuffs off U.S. exchanges. We look forward to working with Congress and the new leadership at the CFTC in pursuit of broad regulatory reform that includes elimination of outmoded Shad-Johnson restrictions." Elimination of Shad-Johnson restrictions is one of the core principles of regulatory reform proposed earlier this year by the CBOT. The CBOT's reform efforts are motivated partly by unfair regulatory advantages for foreign exchanges. Non-U.S. exchanges around the globe, which are not hampered by Shad-Johnson, are now trading more than two million single-stock futures contracts every year.