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COMMODITIES STING
(FORTUNE Magazine) – Don't expect a Wall Street-size scandal out of the Chicago sting, in which the FBI handed out subpoenas to surprised floor traders at the Chicago Board of Trade and the Chicago Mercantile Exchange. Commodities trading is not designed as a retail market, so regulators and Congress will likely be less enraged by whatever wrongdoing they find. If scams are uncovered, the victims are apt to be very well-heeled risk takers, not widows and orphans. A broker like Merrill Lynch will insist that its retail clients have at least $200,000 of liquid net worth, excluding their houses. Still interested in taking a flier? The potential for profits is almost too great for some investors to resist, and they shouldn't. In the soybean market, where the FBI is believed to be conducting one of its investigations, a commodities speculator can buy a contract by putting up only $1,500 on margin. For that amount, he gains temporary control of $37,500 worth of soybeans, which can yield a daily profit of up to $1,500, or a 100% return on his investment overnight. Of course, he can lose the whole bundle too. If the FBI finds widespread trading abuses, the Commodity Futures Trading Commission, which monitors the exchanges, will surely be faulted when it comes up before Congress for its reauthorization hearings this spring. The CFTC has an uneven reputation as an industry watchdog, and there could be increased pressure to fold it into the more powerful Securities and Exchange Commission. |
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