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The Kansas City Board of Trade is composed of three entities: the exchange itself, the KCBT Clearing Corp. and the Board of Trade Investment Co., of which the exchange owns a majority interest.

The Investment Co. owns a 51% interest in the building into which the KCBT moved in 1966. A seven-person board of directors oversees the Investment Co. Four of the directors are KCBT members and the remaining three represent the Investment Co.'s minority interest.

The Clearing Corp. performs a variety of functions to maintain market integrity. Its seven-person board of directors, made up entirely of KCBT members, also is responsible for managing the exchange's capital reserves, which provide protection against the financial insolvency of member firms. Since the Clearing Corp. was established in 1913, no KCBT customer has suffered a financial loss because of default.

The Clearing Corp. acts as a third party to all futures and options contract agreements and matches the buyer to every seller and the seller to every buyer. In this way, buyers and sellers do not have financial obligations to each other but to the clearing firm that represents each trader. Each clearing firm, in turn, is a member of the Clearing Corp., which ensures that each firm honors its financial obligations.

The Kansas City Board of Trade provides a forum where buyers and sellers meet to discover prices. This process is conducted by open outcry, a public auction in which members shout out their bids to buy and their offers to sell in the trading pits.

Only KCBT members can trade in the pits. Memberships are purchased and only a limited number are available.

Since each member owns a portion of the entire organization, each member has an interest in seeing that the exchange functions effectively. The members themselves are the owners of the business and decide how the KCBT operates.

To do that, they elect a Board of Directors, made up of 14 members and four non-members. They also elect members to the Executive Committee, composed of a chairman, first vice chairman and second vice chairman. The Executive Committee acts as a liaison between the Board and the president of the exchange, a paid employee who is not a member.

The Board of Directors appoints members to the committees that oversee most aspects of the exchange, ranging from budgeting, long-range planning and marketing to trading decorum in the pits and publication of a daily news report, KCBT Review. Committees provide direction to the staff and make recommendations about policy changes, which are voted on by the Board of Directors.

A paid staff of about 20 people, led by the exchange's president, ensure that day-to-day operations run smoothly. The staff implements and administers board policies, deals with government policies concerning futures trading, operates and maintains the computer system that records and transmits trading prices, provides economic research and support for members, promotes and markets KCBT products and compiles and publishes a variety of information of benefit to KCBT members.

Self-Regulated
A strict code of rules designed to ensure market integrity governs the KCBT's individual members and member firms. The rules are a combination of federal regulations that apply to all futures exchanges and rules established by the members that apply only to the KCBT.

The federal regulatory agency that oversees the activities of all futures exchanges is the Commodity Futures Trading Commission. CFTC representatives are present at the exchange to view trading first-hand several times a day. They also make sure that the exchange complies with all federal regulations regarding futures trading.

The members themselves help to enforce the rules that govern the exchange. They understand that the integrity of the KCBT is important to the customers who trade at the exchange.

While it rarely happens, if members violate financial or trading rules, they can be brought before various member committees and disciplined by fines, suspension or even expulsion.

In addition to members who oversee rule compliance, staff members in the Audits and Investigation Dept. carry out market surveillance, financial surveillance and audits of member firms.

Staff investigators from the Audits and Investigation Dept., on a daily basis, monitor the trading in all KCBT contracts and make note of large price moves. They also monitor the financial well-being of member firms by reviewing financial statements at least semi-annually. Any indications of financial difficulties are immediately reported to the member-operated Finance Committee for its review. The staff also measures the day-to-day financial positions of member firms against certain criteria and conducts financial surveillance audits, if circumstances warrant.

Audits and Investigation staff also conduct comprehensive audits on some of the futures commission merchant firms that are members of the KCBT. These audits are designed to detect procedural problems that could lead to financial difficulties.

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