Release: #3922-96

For Release: July 10, 1996

CFTC Order Imposes $600,000 Civil Penalty Against Fenchurch Capital
    Management Inc. of Chicago, In Connection with Market Manipulation and
    Cornering

WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced
    today that it has issued an order instituting an administrative proceeding
    against Fenchurch Capital Management, Inc. (Fenchurch) of
    Chicago, Illinois, and has simultaneously accepted its offer of settlement
    under which Fenchurch will pay a $600,000 civil penalty, among other
    remedial sanctions. Fenchurch is registered with the CFTC as a commodity
    trading advisor and commodity pool operator, and it trades extensively in
    the U.S. government securities cash and futures markets on behalf of two
    commodity pools.

Without admitting or denying the CFTC's findings, Fenchurch consented to
    the entry of an order finding that in June 1993, Fenchurch manipulated the
    value of its position in a U.S. treasury note futures contract, which
    traded on the Chicago Board of Trade (CBT), through the cornering of the
    cheapest-to-deliver note on the contract, in violation of the U.S.
    Commodity Exchange Act (CEA).

Fenchurch is simultaneously settling related charges by the Securities
    and Exchange Commission (SEC). Fenchurch's payment of a $600,000 civil
    penalty pursuant to the CFTC's order will also satisfy its payment
    obligation under the terms of its settlement with the SEC. The CBT is also
    settling a related action.

The CFTC's Director of Enforcement, Geoffrey Aronow, commented: "This
    action addresses acts of manipulation and cornering that occurred after
    trading on the futures contract had expired and resulted in an exacerbation
    of congestion in the markets as shorts were preparing to make delivery on
    the futures contract. Manipulation of this sort can and did affect
    improperly the value of the bargain struck before trading had expired."

Aronow also commented on the cooperative efforts of the SEC, CBT, and
    the Federal Reserve Bank of New York in bringing this action, stating that
    "through such joint efforts, regulators can effectively let market
    participants know that we will act to ensure that the markets remain free
    of illegitimate forces."

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The CFTC order finds that in June 1993, Fenchurch committed to take
    delivery on a large long position in the June 1993 Ten-Year U.S. Treasury
    Note Futures contract (June contract) traded on the CBT. The order finds
    that during the last four business days of the delivery period and after
    the last trading day on the June contract, Fenchurch intentionally gained
    and maintained control over a dominant portion of the available supply of
    the cheapest-to-deliver Treasury notes on the June contract. The terms of
    the June contract allowed a range of Treasury notes to be delivered but
    typically one note becomes the cheapest-to-deliver and the price of the
    futures contract converges with the cash market value of the
    cheapest-to-deliver at expiration of trading on the contract. The CFTC
    finds that Fenchurch increased its position in the cheapest-to-deliver note
    through a series of transactions in the repurchase market at a time when
    the notes were in tight supply.

The repurchase market functions as a collateralized borrowing market
    where participants can borrow money against securities or borrow securities
    against funds. The CFTC finds that Fenchurch exacerbated the tightness in
    the supply of the cheapest-to- deliver note by increasing its position and
    intentionally withholding the notes from the market. As a result, the
    CFTC's order finds that shorts on the futures contract were unable to
    obtain sufficient quantities of the notes and had to deliver a more
    valuable security.

The CFTC's order also finds that the funds advised by Fenchurch received
    approximately $480 million of the more valuable security on approximately
    one-third of Fenchurch's futures position, thus enhancing the value of the
    position.

In addition to the $600,000 civil penalty, the CFTC order:

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directs Fenchurch to cease and desist from further violations of
    Sections 6(c) and 9(a)(2) of the CEA, which prohibit acts of manipulation
    and cornering;

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requires Fenchurch to report for two years to the CFTC's Division of
    Economic Analysis its gross long positions in the cheapest-to-delivery
    security in all markets each business day until the last delivery day of an
    expiring Treasury securities futures month, if its futures position equals
    or exceeds 5,000 gross long futures contracts as of the close of the last
    trading day on the contract;

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requires Fenchurch to review its policies and procedures 1) to determine
    whether they are reasonably designed to provide diligent supervision and to
    deter, detect, discipline, and correct conduct of the type found by the
    Commission in this matter to be violative of the CEA, 2) to reform such
    policies and procedures, if necessary, and 3) to submit a report to the
    Division of Enforcement regarding the results of its review; and

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requires Fenchurch to have all its employees with trading or supervisory
    responsibilities sign a statement affirming that they have read and
    reviewed the Commission's order.

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Also available: full text of the
    Commission's Action