U.S. District Court Judge Charles R. Richey refused yesterday to stop the Commodity Futures Trading Commission from authorizing trading in futures contracts based on the Dow Jones' indices of industrial, transportation and utility stock prices.
Richey's decision will permit the CFTC to proceed with plans to approve three new Chicago Board of Trade stock index futures contracts at its meeting today.
Dow Jones sued the CFTC Monday to try to keep its index from being used for futures trading, but Judge Richey refused to grant a temporary injunction blocking the CFTC action.
Dow Jones claims the Chicago Board of Trade is trying to pirate its well-known Dow Jones Industrial Average of 30 stock prices as well as the Dow indices of transportation and utility stocks.
After Dow Jones refused to license the Board of Trade to use its index, the Board of Trade created what amounted to clones of the DJI, using the same stocks and formula, but not the Dow Jones name.
The Board of Trade and Dow Jones already are fighting in courts in Chicago and New York over alleged copyright and trademark violations, but the latest lawsuit was based on alleged conflicts of interest and improprieties by CFTC Chairman Philip McBride Johnson and agency staff members.
Johnson represented the Board of Trade as a private attorney before being named CFTC chairman last spring and prepared the board of trade's original application for stock index futures. Dow Jones attorneys produced memos from CBOT President Robert Wilmouth, showing he discussed the matter with Johnson as recently as February.
Johnson contends he avoided any conflict-of-interest charge by recusing himself from the case immediately after the Board of Trade submitted an amended application last month.
Judge Richey did not rule on the conflict-of-interest charges yesterday. In denying the temporary restraining order, he noted that Dow Jones would not be harmed if the CFTC approved the Chicago Board of Trade application. Board of Trade attorneys told Richey they had agreed not to start actual trading in Dow Jones futures until after a decision is reached in an Illinois state court case over copyright and trademark issues.
As a result of the Dow Jones lawsuit, however, CFTC Chairman Johnson will probably have to answer questions on Capitol Hill about his role in authorizing trading in stock index futures. After deferring action for three years, the CFTC has approved several highly controversial stock index futures contracts since Johnson became chairman.
Stock index futures permit traders to speculate on the rise and fall of the stock market in the same way that grain traders try to profit from changes in corn or wheat contracts by buying and selling contracts for future delivery. Rather than carloads of grain, stock index futures are based on a hypothetical portfolio of stocks represented by an index such as the New York Stock Exchange Composite, the Value Line Index or the Standard & Poor's 500 stock average