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CME traders face uphill battle to delay pit closures -lawyers

(For more Reuters coverage of the closing of Chicago's open-outcry futures pits, please see "Chicago Pits: End of an Era" http://www.reuters.com/subjects/chicago-pits-close)

By Tom Polansek

CHICAGO, June 25 (Reuters) - U.S. regulators will likely allow CME Group Inc to close most of its open outcry futures pits as planned next month, despite last-minute calls from a handful of traders and brokers for an extended review, industry lawyers said on Thursday.

CME adequately responded to concerns four traders and brokers submitted to the U.S. Commodity Futures Trading Commission (CFTC) in letters on Thursday and last week, according to attorneys who reviewed regulatory filings at Reuters' request, but who are not involved in the matter.

The world's largest futures market operator was forced on Tuesday to postpone the closure of the pits to July 6 from the originally scheduled date of July 2 after it revised a CFTC filing in response to the traders' initial letter. The exchange operator said the CFTC could further delay the closure by up to 90 days.

A lawyer representing the traders and brokers sent a second letter to the CFTC on Thursday saying the CME had not done enough to address concerns about its plan to close futures pits.

"This controversy is best addressed during an open comment period in which all interested parties can participate," Chris Kemnitz, a partner at Katten Muchin Rosenman in Chicago, said in his follow-up letter to the CFTC.

The CME is closing its historic futures pits in Chicago and New York because of dwindling open-outcry volume as the industry increasingly moves toward screen trading.

The CFTC is unlikely to give much weight to traders' concerns that CME submissions to the agency over the closures lacked certain required information, said Braden Perry, who was formerly a senior trial attorney for the CFTC, because the CFTC's requirements are not very specific.

The CME has since provided more details, he said.

A second concern raised by the traders about the lack of an alternative venue for a type of transactions currently executed in the Treasury and Eurodollar pits seems to affect too few people to be a major obstacle, added Perry, a partner at the law firm Kennyhertz Perry in Kansas City, Missouri.

"It really comes down to the numbers of people who are trading still in the open-outcry system," he said.

The CME estimates that floor trading in Treasury futures represented 1.8 percent of total volume last year. Less than half of those transactions involved the type of trades, known as user-defined spreads, about which the traders raised concerns, according to the company.

If the CME responds to the traders' second letter by revising its CFTC filing again, that would likely automatically trigger another 10-day review by the agency, which would delay the closure of the pits beyond July 6.

Laurie Bischel, a CME spokeswoman, declined to comment.

CFTC staff could decide to delay the closure of the pits for up to 90 days if they determine CME's plan presents "novel or complex issues" or is not properly explained, according to agency rules. The CFTC declined to comment.

The closure of futures pits is not novel or complex because trading volume has been migrating to computers for years and other exchanges have shut trading pits, said Jeff Barclay, a lawyer for Howard & Howard in Chicago and former CME member.

(Reporting by Tom Polansek. Editing by Andre Grenon)