CHICAGO (CN) - The switch to electronic trading has eliminated CME futures traders' once privileged access to the open outcry pits, and devalued their Class B shares by hundreds of millions of dollars, CME Group members claim in a class action.
Lead plaintiff Sheldon Langer filed a class action against CME Group, and the Board of Trade of the City of Chicago, in Cook County Chancery Court.
The class seeks "hundreds of millions of dollars in damages and declaratory and injunctive relief based on CME's decision to fundamentally change the trading rights and privileges afforded to the Class B plaintiffs."
CME - the Chicago Mercantile Exchange, also known as the Merc - is the world's largest futures and options exchange company.
Langer has been a member of CME since 1974.
Plaintiffs are largely "old-line" traders and members of CME who own Class B shares in it, "designed to preserve the value of their membership by protecting their trading rights and privileges into the future."
But in the past 15 years, CME has radically changed its business model, the class claims. In 2000, most trading was still done in open outcry pits; today the vast majority of trading is done electronically.
In January 2012, CME opened the Aurora Data Center (ADC) to house its Globex electronic trading engine, which matches bids to offers to sell.
"Upon opening the ADC, CME discontinued its longstanding practice of providing the Class B Plaintiffs with the best access to the Globex for free, told the Class B Plaintiffs that they would need to pay substantial monthly rental fees to access the Globex at the ADC, and began bypassing the lease market for the trading and access rights associated with Class B shares by directly marketing the right to access Globex in the ADC. By doing so, CME breached its contractual obligations, under which one of the 'Core Rights' afforded to the Class B plaintiffs is that any change to their floor access rights and privileges or to the eligibility requirements for exercising the trading rights and privileges of CME requires the approval of the Class B plaintiffs, which CME never obtained," the class claims.
The plaintiffs claim that Class B memberships have lost hundreds of millions of dollars in value since losing these fundamental privileges, even while CME's Class A shares have seen tremendous growth.
"Historically, Class B Plaintiffs had been able to generate significant revenues by leasing their 'seats,' i.e., the trading rights and privileges that are, as a matter of contract, associated with Class B memberships. The languishing value of the Class B plaintiffs' seats since the beginning of 2012 stems from the fact that the previously liquid and lucrative market for leasing the trading rights and privileges associated with Class B memberships has been substantially destroyed," the complaint states.
The plaintiffs seek class certification, an injunction restoring their privileged access to the electronic trading platform, and damages for breach of contract.
They are represented by Suyash Agrawal with Agrawal Evans, with assistance from Stephen Susman with Susman Godfrey in Houston.