The Chicago Board of Trade is investigating trading in the municipal futures contract, following complaints by some market participants that Goldman, Sachs & Co. manipulated bond prices in the index underlying the contract.

But officials representing the six interdealer brokers that submit bond prices for the index denied that any manipulation occurred.

Board of trade officials said that while they are investigating some complaints, they have not turned up any wrongdoing.

The complaints, which originated among several institutional investigators, charged that Goldman was quoting to brokers prices on bonds in the index that it later refused to honor when investors called seeking to buy or sell the bonds at the quoted prices.

The firm "has done everything properly and stands by its quotes," a spokesman for the firm said.

The problems arose after Goldman began faxing a list of its prices on the 40 bonds in the index to each of the six brokers twice a day. The index is used to set the price of the June futures contract, which expires today.

The list included the price at which Goldman would buy and sell each of the bonds. It included a standard disclaimer that the prices were not set in stone and were subject to market conditions.

Although some of the brokers said they received the list, they maintained that it did not dictate their own pricing of the bonds.

"We are supposed to independently value the bonds in the index and that's what we do," an official on the dollar bond desk at one broker said. "Goldman has been totally up-front about this."

Some brokers said they have no knowledge on any investigation and have seen no unusual practices on the market.

"We just price it the way we see it," said Mark J. Epstein, president of J.F. Hartfield & Co., one of the six brokers that price The Bond Buyer index.

Goldman began faxing the lists about two weeks ago, a source familiar with the firm said.

Goldman officials felt that over the past year, some bonds in the index were being priced below fair market value. They said that, in the past, they had contacted the brokers by phone concerning prices of bonds in the index.

But in March, on the day the March contract expired, the firm heard that the Board of Trade was looking into possible manipulation of the index. So the firm decided not to call the brokers with prices that day, sources said.

The index then closed below the firm's estimation of its fair value.

As a result, Goldman officials sought a more straightforward and efficient manner to disseminate their view of the prices of bonds in the index a source familiar with the firm said. So Goldman began sending out the faxes two weeks before the June contract was scheduled to expire.

One complaint resulted from a Goldman price on June 15 of a bond in the index issued by Fulton County school districts. When an investor called several hours after the Goldman list was faxed out, the firm had changed its quote.

The market had moved substantially, requiring a revaluation, sources familiar with the firm said.

But the investor cried foul and complained to the Board of Trade.

Donald Sternard, the board's director of market surveillance, declined to comment on the matter. He would only say that the exchange looks "at all the expirations of all the contracts and closely monitors them."

But a source at the CBOT said the exchange has been investigating complaints about a firm putting in bids for particular bonds in the cash market and then pulling the bids. The exchange so far has not uncovered any manipulation of the futures contract, the source said.

The board's enforcement division routinely investigates unusual trading patterns, complaints from member firms, and even market rumors. But few of the these investigations result in formal disciplinary hearings.

"Most informal investigations do not result in a formal proceeding," said an attorney who worked for the Commodities Futures Trading Commission. "It's mostly tracking down rumors. But they look into almost everything."

The exchange's surveillance department is also looking into a one-point spread last Wednesday between The Bond Buyer index's cash and future market that may or may not be related to the bidding complaints.

Sylvie Bouriaux, the CBOT's advisory economist, said the index was priced at 92.28 for the 3 p.m. pricing last Wednesday, while the futures market was a point higher at 93.28 at the close.

"A whole point difference four days before expiration is unusual," she said, referring to the June contract's expiration today.

Bouriaux said the exchange's surveillance department is reviewing the discrepancy.

"[The pricing] did not reflect where everyone else felt the market should be," she said, adding that the one-point difference "spurred a lot of rumors" in the market.

She declined to comment on whether the exchange is investigating Goldman Sachs for any particular incident. But she did say that market surveillance would look at the underlying cash market and the big players in the cash and futures markets for an investigation it undertakes for any exchange contract.

The Bond Buyer Municipal Bond Index was created in 1983 by The Bond Buyer and the Chicago Board of Trade to serve as the basis for trading municipal bond futures at the exchange. The index is based on price quotations for 40 actively traded municipal bonds provided by six dealer-to-dealer brokers.

To calculate the index, The Bond Buyer takes the six quotes for each bond, drops the highest and lowest quotes and average the remainder. That average price is divided by a conversion factor to produce an "average converted price," which is the price that particular bond would have if it had a standard 8% coupon. The 40 average converted prices are then averaged and multiplied by a smoothing coefficient to produce the index itself.

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