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Commodity Futures Trading Commission 

CEA CASES 

NAME: DAVID LAIKEN 

CITATION: 23 Agric. Dec. 1193 

DOCKET NUMBER: 113 

DATE: OCTOBER 9, 1964 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 9373) 

In re DAVID LAIKEN. CEA Docket No. 113. Decided October 9, 1964. 

Noncompetitive Trades -- Time of Execution -- Hearsay Evidence -- Violation 

of Regulations -- Suspension of Registration

Respondent's registration as a floor broker is suspended and his trading 

privileges on contract markets refused, both for a period of 10 days, for making 

a trade in the May 1963 potato future in a manner that was not open and 

competitive in violation of section 1.38 of the regulations under the act, but 

charges of 2 additional violations of such section of the regulations in 

connection with trading in such future dismissed for lack of proof thereof. 

Mr. Earl L. Saunders for Commodity Exchange Authority. Mr. Leonard Hemley, of 

New York, New York, for respondent. Mr. John J. Curry, Referee. 

Decision by Thomas J. Flavin, Judicial Officer

PRELIMINARY STATEMENT

This is an administrative proceeding of an adversary nature under the 

Commodity Exchange Act (7 U.S.C. § 1 et seq.) instituted by a complaint and 

notice of hearing issued under section 6(b) of the act (7 U.S.C. § 9), on 

October 25, 1963, by the Assistant Secretary of Agriculture. The respondent, a 

registered floor broker under the act and a member of the New York Mercantile 

Exchange, is charged with making trades in the May 1963 potato future on the New 

York Mercantile Exchange in a manner which was not open and competitive, in 

violation of section 1.38 of the regulations under the act (17 CFR 1.38). The 

respondent filed an answer denying the allegations of the complaint. 

A hearing was held in New York, New York, on December 12, 13 and 14, 1963. 

John J. Curry, Office of Hearing Examiners, United States Department of 

Agriculture, was assigned as referee in the proceeding and presided at the 

hearing. Leonard Hemley of the law firm of House, Grossman, Vorhaus and Hemley, 

New York, appeared as counsel for the respondent. Earl L. Saunders, Office of 

the General Counsel of the Department, appeared as counsel for the complainant. 

Five witnesses testified for the complainant and 21 exhibits were received on 

behalf of the complainant. The respondent testified in his own behalf and 

introduced six exhibits. The respondent's motion to dismiss, made 

after the complainant had concluded the presentation of its evidence, was denied 

by the referee. Both parties filed briefs after the close of the hearing. 

The case involves three alleged infractions of section 1.38 of the 

regulations. As to two of these the complaint alleges that respondent assigned 

or gave to his customer, Clayton Brokerage Company, Clayton, Missouri, futures 

purchases which respondent had previously made for himself on the same day. As 

to these two charges the referee recommended dismissal for lack of adequate 
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evidence. With respect to the third charge, involving an arrangement between 

respondent and another floor broker whereby respondent purchased for Clayton 26 

contracts from the other floor broker selling for respondent's account the 

referee recommended that respondent be found to have violated section 1.38 of 

the regulations. 

Both parties filed exceptions to the referee's report and oral argument was 

held before the Judicial Officer on August 21, 1964. 

FINDINGS OF FACT

1. The New York Mercantile Exchange, hereinafter called the exchange was, at 

all times material herein, a duly designated contract market under the Commodity 

Exchange Act. Contracts for the sale and purchase of potato futures thereon can 

be used for hedging transactions in interstate commerce in potatoes or the 

products or by-products thereof, or for determining the price basis of 

transactions in interstate commerce in such commodities, or for delivering such 

commodities sold, shipped, or received in interstate commerce. 

2. The respondent, David Laiken, an individual whose address is 6 Harrison 

Street, New York, New York, is now, and was, at all times material herein, a 

registered floor broker under the act and a member of the exchange. 

3. When trading on the exchange is conducted by means of board trading, the 

bids and offers are made by open outcry and are posted on "bid and offer" boards 

by employees of the exchange. Offers at the same price have priority for 

acceptance in the order in which made. The same is true as to bids. In the 

course of board trading, a floor broker wishing to buy from another floor broker 

whose offer has priority for acceptance, or to sell to another floor broker 

whose bid has priority for acceptance, 

calls out his acceptance and the trade is consummated. Thus, a floor broker 

wishing to accept a particular offer already made by another floor broker may do 

so by calling out his acceptance of such offer and all prior offers at the same 

or lower prices. However, in the event a floor broker is following the 

procedure prescribed by the exchange for taking the other side of his customer's 

order, such floor broker is required to post both the bid and offer at the same 

price and to give every other broker an opportunity to accept either at the 

posted price. 

4. Trades made in the course of board trading on the exchange are recorded in 

chronological order on "execution" boards by employees of the exchange as soon 

as such trades are made. Each of these boards is designated by a different 

letter of the alphabet and contains numbered lines on which the trades are so 

recorded. Normally, as each price change occurs in the course of board trading, 

the time of the transaction in which the price change occurs is recorded on the 

execution board on the same line on which such transaction is recorded. The 

exchange photographs the boards on which trades are recorded and these 

photographs are thereafter maintained by the exchange as permanent records. As 

trades are made on the exchange, they are recorded in chronological order on 

ticker tape by an employee on the Western Union Telegraph Co., and the time at 

various intervals is recorded on this tape. After each trading session, such 

tape is turned over to the exchange and thereafter maintained by the exchange as 

a permanent record. At all times material herein, trading in May 1963 potato 

futures on the exchange was conducted by means of board trading. 

5. In the usual course of business, when a brokerage firm or futures 

commission merchant receives an order to buy or sell futures on the exchange, an 

employee of the firm prepares an office order on a printed form, and enters the 

date, the order number, the identification of the account, the commodity and the 

future, the quantity to be bought or sold, and the terms or conditions under 

which the purchase or sale is to be made. This information is then telephoned 

by an employee of the firm directly to the firm's floor broker on the trading 

floor of the exchange. As soon as such order is executed by the floor broker, 
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he reports the execution to the office of the firm by telephone, and an employee 

of the firm enters on the office order the quantity bought or sold and the 

price. In addition, the floor broker reports to the employee of the firm the 

board and line on which the trade 

is recorded, and the employee enters this information on the office order. 

6. In the usual course of business, a brokerage firm or futures commission 

merchant time stamps the face of the office order immediately after the order is 

telephoned to the floor broker for execution, and time stamps the office order 

again immediately after a report of execution of the order is received by the 

office from the floor broker. The purpose of so stamping the office order is to 

give the brokerage firm a record of when the order is telephoned to the floor 

broker and when it is reported by him as executed. 

7. On January 11, 1963, the respondent, in his capacity as floor broker, 

received over the telephone from Clayton Brokerage Co., Clayton, Missouri, a 

registered futures commission merchant, an order to buy on the exchange for 

Clayton's account, 5 May 1963 potato futures contracts at a price of $ 2.52 per 

hundredweight. According to the board described in Finding of Fact 4 the trade 

was made between 9:36 a.m. and 9:52 a.m. According to the Western Union ticker 

tape the trade was made between 9:45 a.m. and 9:50 a.m. On the other hand, the 

Clayton office copy of the order to buy bears a time stamp of 8:53 a.m., which 

would be 9:53 New York time, as the time the order was sent to respondent and as 

the time the order was reported filled by respondent. 

8. On January 11, 1963, the respondent, in his capacity as floor broker, 

received over the telephone from the said Clayton Brokerage Co. an order to buy 

on the exchange for Clayton's account, 13 May 1963 potato futures contracts at 

the going market price. According to the board described in Finding of Fact 4 a 

trade covering 4 of the 13 contracts was made at 10:06 and trades of 2 contracts 

and 10 contracts, of which 7 were part of the 13 contracts in issue, were made 

at 10:06 or thereafter prior to 10:13 a.m. According to the Western Union ticker 

tape the trades were made between 10:00 a.m. and 10:05 a.m. 

9. On January 11, 1963, the respondent, in his capacity as floor broker, 

received from the said Clayton Brokerage Co. 6 orders to buy on the exchange for 

Clayton's account, a total of 26 May 1963 potato futures contracts. Shortly 

after the respondent received such orders, he instructed Charles Lepore, another 

floor broker, to offer 26 May 1963 potato futures contracts at a price of $ 2.54 

per hundredweight, and Lepore thereupon called 

out this offer. As soon as such offer was called out, the respondent called out 

his acceptance, thus purchasing the 26 contracts which he had offered through 

Lepore. The respondent applied the purchase of the said 26 contracts against 

the buying orders mentioned above, and took the sale side of the transaction 

into the house account of Laiken and Laiken, a partnership composed of the 

respondent and his wife. 

CONCLUSIONS

I

The complainant's case is that respondent violated section 1.38 of the 

regulations under the act in connection with the 5 contract transaction 

described in Finding of Fact 7, the 13 contract transaction referred to in 

Finding of Fact 8, and the 26 contract transaction related in Finding of Fact 9. 

Respondent raises no issue as to the validity of section 1.38 but defends by 

claiming that the complainant has not established a violation in any of the 

three transactions involved. The referee recommended that the charges with 

respect to the 5 contract and the 13 contract transactions be dismissed for lack 
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of adequate proof but that respondent be found to have violated section 1.38 in 

connection with the 26 contract transaction. 

Section 1.38 of the regulations reads as follows: 

Execution of transactions -- (a) Competitive execution required; exceptions.

All purchases and sales of any commodity for future delivery on or subject to 

the rules of a contract market shall be executed openly and competitively

(emphasis supplied) as to price by open outcry or posting of bids and offers or 

by other equally open and competitive methods, in the trading pit or ring or 

similar place provided by the contract market, during the regular hours 

prescribed by the contract market for trading in such commodity: Provided, 

however, That this requirement shall not apply to such transactions as are 

executed in accordance with written rules of the contract market which have been 

submitted to and not disapproved by the Secretary of Agriculture, specifically 

providing for the noncompetitive execution of such transactions. 

(b) Noncompetitive trades; exchange of futures, etc., requirements. Every 

person handling, executing, clearing, or carrying trades or contracts which are 

not competitively executed, including transfer trades or office trades, or 

trades involving the exchange of futures for cash commodities or the exchange of 

futures in connection 

with cash commodity transactions, shall identify and mark by appropriate symbol 

or designation all such transactions or contracts and all orders, records, and 

memoranda pertaining thereto. 

II

Complainant's contention with respect to the 5 contract issue and the 13 

contract issue is that respondent noncompetitively assigned or gave to his 

customer, Clayton, purchases previously made on the exchange by respondent for 

his partnership account with his wife. 

Complainant then has the burden of proving that respondent had not received 

from Clayton the orders to buy at the times the trades involved were executed. 

So that the precise times at which the trades were executed on the exchange and 

at which the orders to buy were sent by Clayton to respondent are crucial to the 

complainant's case. 

As to the times of execution of the trades, complainant shows that the 5 

contract trade was made according to the execution board between 9:36 a.m. and 

9:52 a.m. and according to the Western Union ticker tape between 9:45 a.m. and 

9:50 a.m. Respondent has estimated the time as 9:49 a.m. We see, however, that 

in comparing the execution board and the Western Union ticker tape with respect 

to the 13 contract transaction, the tape records the three trades covering the 

13 contract transaction as having taken place between 10:00 a.m. and 10:05 a.m. 

whereas the execution board shows that a 4 contract trade, the first of three 

trades covering the 13 contract transaction, took place at 10:06 a.m., thus 

revealing a variance of at least one minute between the times of execution shown 

in the board and by the tape. 

On the issues as to exactly when the buy orders were sent by Clayton to 

respondent there is a problem of exactitude. The times of sending were time 

stamped on Clayton's office copies of the orders and the times stamped appear to 

be later than the times the trades were apparently executed on the exchange. 

But, without more, these time stamps are not conclusive proof that the orders 

were sent at the precise moments stamped. Aside from questions of the accuracy 

of the time clock and the lack of synchronization of Clayton's clock in St. 

Louis and the clock on the floor of the exchange, it is seen from the record 

that it was the practice of Clayton to time stamp the office copy of the order 
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as sent immediately after the order was telephoned by an order clerk to 

respondent. There were no witnesses from the Clayton firm at the hearing and 

the information as to Clayton's office procedures came into evidence through 

testimony of an investigator for complainant. How little or how much time in 

the way of minutes or fractions of minutes might elapse between the sending of 

an order and the time stamping of the copy of the order as sent is not revealed 

by the evidence except by the testimony of the investigator that the head 

customer's man at Clayton gave it as his opinion that this time span should not 

be more than two minutes and probably should be about a minute. Of course this 

was hearsay evidence with no opportunity to respondent for testing by crossexamination and could not serve alone as constituting substantial evidence in 

support of a finding of fact to this effect. Consolidated Edison Co. v. National Labor Relations Board, 305 U.S. 197 (1938). 

As we have seen there are only two or three minutes at the most between 

complainant's evidence as to when the 5 contract order was sent and the 

execution of the trade. There seems to be a longer time interval with respect 

to the 13 contract transaction. But Clayton's order to buy the 13 contracts was 

Clayton's Order No. 7 to respondent. Orders No. 8 through 14 were also buy 

orders to respondent from Clayton and the Clayton office copies of all these 

orders are time stamped as having been sent at 9:11 a.m. and reported as filled 

at 9:23 a.m. which would be 10:11 a.m. and 10:23 a.m., respectively, New York 

time. We have no way of knowing from the evidence how long it would take in 

minutes or fractions of minutes for the order clerk to telephone these orders at 

one time and then to time stamp the office copies of all the orders. 

In view of the narrow time spans involved and the scarcity of reliable 

evidence as to the exact minutes at which the trades were made and the orders 

sent, we reach the same conclusions as the referee with respect to the 5 

contract and the 13 contract transactions, namely, that these charges should be 

dismissed. 

It is true, of course, that complainant introduced testimony indicating that 

respondent had admitted the charge as to the 5 contract transaction. 

Hugh A. Collins, an investigator in the New York office of the Commodity 

Exchange Authority, testified for the complainant that he and Sheldon 

Coopersmith, chief investigator in the New 

York office of the Commodity Exchange Authority, interviewed the respondent on 

April 3 and May 20, 1963, during the investigation which preceded the issuance 

of the complaint in this proceeding. Mr. Collins testified that during the 

interview of May 20, 1963, he showed the respondent a copy of the office order 

of Clayton Brokerage Co. covering the order involved in Finding 7, and informed 

the respondent that according to the records of the exchange the transaction in 

which the contracts were purchased to fill this order occurred before the 

respondent received such order from Clayton Brokerage Co. Mr. Collins testified 

that he then asked the respondent "how he could execute an order before he 

received it", and that the respondent explained that on "a number of occasions" 

he advised Clayton Brokerage Co., when it had a considerable number of orders to 

execute, that "'I just purchased a number of contracts for my own account. If 

you wish so many, I will give them to you' ", and that "it could have been the 

case on these five; that he may have given these five contracts which he 

previously had purchased for his own account." Mr. Collins testified that during 

the same interview he asked the respondent if he filled the order for 13 

contracts with contracts which he previously had purchased for his own account 

and that the respondent replied, "that he could not remember; that he did not 

give them these contracts which he purchased for his own account." 

Charles E. Robinson, Director of the Compliance Division in the Commodity 

Exchange Authority, testified for the complainant that on October 28, 1963, 

subsequent to the issuance of the complaint, the respondent called him on the 

telephone and requested additional information concerning the charges alleged. 

Mr. Robinson testified that during such telephone conversation the respondent 
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voluntarily stated that he remembered filling the order for 5 contracts with 

contracts which he previously had purchased for his own account but that he had 

no recollection of the order for 13 contracts. 

Nevertheless, respondent denied under oath at the hearing that he had made 

any such admissions and the referee in his report did not think it necessary to 

adjudicate the issue of admission as to the 5 contract charge because he 

concluded that the charge failed otherwise for want of sufficient evidence. 

With this the posture of the case on this point we do not think that we can 

resolve the matter at this stage nor do we think it appropriate or necessary to 

remand the matter to the referee. 

III

The referee concluded that the respondent had violated section 1.38 of the 

regulations by virtue of the manner in which respondent handled the 26 contract 

transaction described in Finding of Fact 9. Respondent had in hand orders from 

Clayton to purchase 26 contracts and he arranged with another floor broker, 

Lepore, to offer to sell 26 contracts at $ 2.54 for respondent's account and 

respondent immediately accepted the offer and thereby filled the Clayton 

purchase orders. This was not open and competitive trading because respondent's 

bid and offer were not exposed and no one else trading on the floor was afforded 

an opportunity to sell to respondent at $ 2.54 to fill Clayton's purchase 

orders. 

Respondent claims that the transaction was open and competitive because 

Lepore called out the offer to sell and respondent called out his acceptance. 

The alleged open offer and acceptance amounted, however, to form without 

substance. The offer to sell was made by Lepore for respondent at respondent's 

request and immediately accepted by respondent while they were both still on the 

telephone. Respondent argues that there was outstanding on the board at the 

time an offer to or offers to sell a contract or two at $ 2.54, $ 2.53 bid, 

which had not been accepted by any trader, so that in accepting the offer to 

sell at $ 2.54 respondent was accepting an offer turned down by all other 

traders and that, therefore, there was nothing wrong with the arrangement. But 

as we pointed out above, all other traders were kept from the opportunity to 

sell at $ 2.54. 

Respondent insists that the 26 contract transaction was open and competitive 

and that therefore, there is no occasion to go into the question as to whether 

under section 1.38 of the regulations it was a noncompetitive trade authorized 

by written rules of the exchange not disapproved by the Secretary of 

Agriculture. We do not agree of course with respondent. But, at any rate, 

examination of the rules of the exchange does not reveal that respondent 

complied with any applicable rule for the handling of noncompetitive trades. 

Section 43.16 of the exchange rules provides: 

TRADING AGAINST CUSTOMER'S ORDER 

No member, having an order from a customer, may take the opposite side of the 

transaction for himself, directly or indirectly, or for an account of any firm 

or corporation of 

which he is a partner, officer, or employee, or for account of any partner, 

officer, or employee of such firm or corporation, unless the clearing member has 

the prior consent of the customer, in which event the transaction shall be 

handled in accordance with the procedure outlined in section 43.12 of this 

Chapter, except that the bidding and offering must be at the same price. The 

carrying member, in placing orders on the floor, shall use due diligence to 

assure compliance with this section of the Bylaws. 

Section 43.12 of the exchange rules provides: 
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SIMULTANEOUS BUYING AND SELLING ORDERS 

A member who shall have in hand at the same time both buying and selling 

orders of different principals for the same commodity for future delivery in the 

same delivery month may execute such orders for and directly between such 

principals at the market price, provided: 

(a) When pit trading prevails, such orders are first offered by said member 

openly and competitively by open outcry in the trading pit on the Exchange floor 

by bidding and offering at the same price, and neither such bid nor offer is 

accepted; or, 

(b) When in non-pit trading, bids and offers are posted on a board, such 

member (i) pursuant to such buying order posts a bid on the board and, incident 

to the execution of such selling order, accepts such bid and all other bids 

posted at prices equal to or higher than the bid posted by him, or (ii) pursuant 

to such selling order posts an offer on the board and, incident to the execution 

of such buying order, accepts such offer and all other offers posted at prices 

equal to or lower than the offer posted by him; 

(c) Such member executes such orders in the presence of the President or his 

official representative designated to observe such transactions and, by 

appropriate descriptive words or symbol, clearly identifies all such 

transactions on his trading card or other similar record, made at the time of 

execution, and notes thereon the exact time of execution and promptly presents 

said record to the President or his official representative for verification and 

initialing; 

(d) The Exchange shall keep for at least five years a record of each such 

transaction showing the date, price, 

 

quantity, kind of commodity, delivery month, by whom executed, and the exact 

time of execution; and 

(e) Neither the futures commission merchant receiving nor the member 

executing such orders has any interest therein, directly or indirectly, except 

as a fiduciary. 

(f) The carrying member, in placing orders on the floor, shall use due 

diligence to assure compliance with this section of the Bylaws. 

As the referee concluded in his recommended decision, the evidence does not 

show that respondent complied with rule 43.16 which makes the procedure of rule 

43.12 applicable to members taking the opposite side of a customer's order. 

All contentions and arguments, etc., made by the parties have been carefully 

considered, and whether or not specifically mentioned herein, any objections, 

exceptions, etc. inconsistent with this decision are denied or overruled. 

Respondent's violation of section 1.38 of the regulations under the act was 

wilful and was serious in nature because competitive execution of trades is 

essential to the maintenance of a free and effective market. We accept the 

recommendation of the referee that respondent's registration be suspended for 10 

days and trading privileges on the contract markets be refused to respondent for 

that period of time. 

ORDER

Effective November 9, 1964, the registration of David Laiken as a floor 

broker under the act is suspended for a period of 10 days and all contract 

markets shall refuse all trading privileges to David Laiken during this period, 

such refusal to apply to all trading done and all positions held by respondent 

directly or indirectly. 
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