Shady Trading in the Windy City. IT'S THE PITS

WHEN FBI agents went undercover to probe Chicago's futures exchanges, they found a world as mysterious as their own. Floor traders use their own lingo. They buy and sell items few people understand. The trading itself looks more like a huge shouting match than a market.

``People assume that this is a wild and woolly business,'' says Bob Wilmouth, president of the National Futures Association and former president of the Chicago Board of Trade. ``But that is far from the truth.''

So, as word leaked out last week about the two-year corruption investigation of two large exchanges here, the industry's biggest concern was its already mysterious public image.

Traders worry about what the probe might mean for business. And, more broadly, the industry is concerned that Congress will overreact.

``It's good to clean out what needs cleaning out,'' says a top executive of a large futures firm. But ``you need to keep a perspective on it.''

Last week, the US Attorney's office in Chicago reportedly handed out more than 50 subpoenas to members of the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange. That total represents far less than 1 percent of all members of the two exchanges, this executive says. On the other hand, federal agents on Tuesday began delivering subpoenas for the records of many commodity firms that handle trades at the two exchanges.

The Board of Trade was quick to try to calm the situation. ``A subpoena is part of an investigative process and should not be portrayed as a general indictment of the CBOT membership,'' the exchange's board chairman and president said in a statement.

Several questionable trading practices are reportedly under investigation. They involve schemes in which traders profit by privately negotiated deals, prior knowledge of big transactions, or buying and selling at prices that are slightly different than what customers pay. In large trade deals these small price differences can add up to thousands of dollars.

The industry already came under intense federal scrutiny last year after the stock-market crash. Regulators wanted to know whether futures' trading had caused the crash and concluded that there was no single cause.

The federal probe, though, is likely to spur further inquiry. The industry's regulator - the Commodity Futures Trading Commission - comes up for reauthorization in Congress this year. The commission has left much of the policing of the industry to the exchanges. Congress is expected to look into whether this self-policing has worked.

`WE do expect some concern to emerge in Congress - and it's already being talked about,'' says Neal McGarity, spokesman for the Futures Industry Association.

For their part, the exchanges and traders defend the current system of self-regulation.

In a letter to members Monday, the Chicago Mercantile Exchange said it has already begun investigating several of the alleged deceptive trading schemes. ``Our own internal compliance department had already focused on many of the same practices that appear to be central to the federal investigation,'' it said.

Then Wednesday, exchange officials announced that they had set up a panel, made up of five industry officials and five current or former public officials, to review the exchange's trading procedures.

According to the Chicago Tribune, which first reported the undercover investigation last Thursday, the exchange has stepped up its vigilance in the past two years, levying $3.3 million in fines against offenders.

But outside the self-contained world of the futures industry, there is not only mystification about the system, there is distrust in some quarters, especially in agricultural circles.

It is reported, for instance, that the FBI investigation of alleged fraud came about because of a complaint from Archer-Daniels-Midland Company - a report the agricultural company will not confirm or deny. Two undercover agents in the federal probe posed as traders for the company.

Many farmers, too, have criticized the exchanges over the years. In 1984, farmers from around the Midwest converged on the Chicago Board of Trade to protest what they saw as unfair trading practices.

Farmers now represent only a small part of the users of futures, as the exchanges have expanded into new financial markets. And it is not at all clear whether the federal probe will hurt trading in these markets, traders say.