The scene in the movie “Trading Places” where Eddie Murphy and Dan Aykroyd profit off of the frozen orange juice markets by using a stolen, as-yet-unreleased U.S. Department of Agriculture (USDA) report is apparently burned on the brain of officials at the CFTC.
The agency has proposed a so-called “Eddie Murphy rule” to ban insider trading using nonpublic information from a government source, but agricultural analysts say that the chance of this happening outside of the movies is extremely slim.
“I know of no instances of this happening in real life,” says Rich Nelson, director of research at Allendale, Inc. “[There’s always talk] of maybe one firm having a jump on the numbers, but I don’t believe anything like that has happened recently.”
The Eddie Murphy rule was mentioned in testimony on March 3 by CFTC Chairman Gary Gensler before the House Agriculture Committee on implementation of changes to the Commodity Exchange Act contained in the 2008 Farm Bill. Gensler also spoke to the Committee about SEC-CFTC harmonization and the agency’s ongoing efforts on OTC derivatives reform (see “Traders view of the world,” page 54).
The USDA has extreme safeguards surrounding the release of its reports, with staff of the Ag Statistics Board, which prepares the report, in physical lockdown beginning at midnight the day the report is released. Telephone and computer lines are disconnected in lockup and windows are essentially wired shut, according to the USDA’s Web site.
“We send a market editor to the lockup, and it is [indeed] a lockup. No information [is] allowed to get out. Going into the report, the numbers are seen by a very few number of economists. The opportunity for someone to get a hold of these, unless you’re dressed in a gorilla suit on a train somewhere, is very difficult,” says Darin Newsom, senior analyst at Telvent DTN. “I don’t see it as a huge issue or problem right now for the grain markets.”
The rule could stem from larger efforts on CFTC-SEC harmonization. “It seems like they’re trying to implement some SEC rules that they use for stocks and try to make it more homogenous with the CFTC. We’re talking about a different animal,” Newsom says.
And of course there is a huge difference in securities and futures, because in futures commercial hedgers and brokers who service them are trading on inside information based on their assessment of production.