Private Ordering, Self‐Regulation and Futures Markets: A Comparative Study of Informal Social Control*

Abstract

This paper describes an empirical study of futures market regulation in three jurisdictions: Chicago, Hong Kong, and Sydney. It focuses on private ordering and argues that informal mechanisms of social control have been crucial in maintaining market “order” and curbing trading abuses. Peer group pressure, fear of being ostracized, the leverage of large institutional clients, the transparency of certain market dealings and the opportunities this provides for “pay back” between “repeat players”, have been far more important in ordering behavior than the remote and often unenforced rules imposed either by government or the exchanges themselves. It is suggested that to understand “crime in the pits” we should focus on criminogenic structures which facilitate fraud through specific combinations of opportunity and risk. It is also structural factors which substantially account for the relative success or failure of private ordering in constraining trading abuses in different markets.