New York, January 20, 2012 – ELX Futures, L.P. (ELX), a leading electronic futures exchange, announced today that veteran futures industry executive Richard Jaycobs will succeed Neal Wolkoff as Chief Executive Officer of ELX.
Mr. Jaycobs, a 25-year veteran of the futures and derivatives industry, has served as President of the Cantor Exchange, a CFTC-regulated exchange committed to providing the market with innovative products in entertainment, weather, and news events. Earlier, he served as CEO of the Chicago-based Clearing Corporation (formerly the Board of Trade Clearing Corporation), CEO of onExchange, and Managing Director at the New York Cotton Exchange.
ELX launched in July 2009 to establish a faster, more efficient, competitive alternative for global market participants trading future contracts. ELX’s founding firms include leading financial institutions, dealers, trading firms and a major electronic and voice broker and technology provider: Bank of America Merrill Lynch, BGC Partners, Barclays Capital, Breakwater/Peak6, Deutsche Bank, Citi, Morgan Stanley, Goldman Sachs, Credit Suisse, RBS, J.P. Morgan, and Getco.
Using BGC Partners’ proven eSpeed electronic trading platform, and focused on providing low-cost execution, competition and liquidity in the interest rate futures marketplace, ELX currently offers US Treasury Futures (2, 5, and 10-year notes and 30-year and ultra long-term bonds) and Eurodollar Futures. ELX enables market arbitrage, both outright and spread execution, and cash/futures basis trading through multiple front ends with an ultra-fast matching engine.
Mr. Jaycobs said, “ELX has firmly established a liquid market and a diverse customer base for interest rate futures, and I am excited about the challenge and opportunity to continue offering futures market participants a compelling fee structure, superior services and robust technology.”
###
About ELX Futures
ELX Futures, L.P. is a fully electronic exchange founded by leading global financial institutions with the goal of bringing the benefits of cost-efficiency, liquidity, market continuity and enhanced speed to all market participants. For information and news about ELX, visit www.elxfutures.com or email info@elxfutures.com. Clearing services are provided by the Options Clearing Corporation (OCC), the world’s largest equity derivatives clearing organization. For more information about OCC, visit www.theocc.com. ELX market data is available through Bloomberg, Thomson Reuters, CQG and BGC Market Data.
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Jumat, 20 Januari 2012
Jumat, 29 Oktober 2010
Five Minutes Interview With ELX CEO Neal Wolkoff
This article is also posted on the main page of MarketsWiki.
Neal Wolkoff is the CEO of ELX Futures, L.P. He was named to the position on Oct. 6, 2008. Previously, he had been CEO of the American Stock Exchange prior to its acquisition by NYSE. At issue as of late for ELX Futures is that an exchange for futures (EFF) block-trade mechanism offered by ELX Futures allows traders to move their Treasury futures positions from one exchange to the other. CME Group has claimed ELX's EFF violates CME's rules. Both exchanges have petitioned the Commodity Futures Trading Commission (CFTC) to decide the issue. Wolkoff talked with MarketsWiki Senior Editor/ Producer Christine Nielsen.
Q: So I'm trying to get a handle on where things stand with these petitions to the CFTC regarding EFFs. Could you first give me your impressions on that?
A: The submission of information is over, although the CFTC could ask for more information; but I can't speak for the agency. We’ve been pleased that the Commission has been responsive on the EFF issue and has publicly stated that EFFs do not violate any laws or regulations.
Q: Have you had a chance to read the interview we recently did with Foley & Lardner's Scott Early? What about this idea of a natural barrier disadvantage?
A: I would just preface this by saying that he (Scott Early) has been a well-respected regulated futures industry attorney for a number of years. By getting into economic theory and intellectual property, he steered away from his area of expertise. Plus, based on his statement that there is an intellectual property right in a product, the reality is that this does not exist. The reality is that there's nothing to patent or to copyright. We're not doing anything that a normal competitor wouldn't do. The CME is essentially a monopoly. There's nothing about ELX using this EFF mechanism that is illegal and this has never been an argument about intellectual property. The role of the exchanges includes promoting the best interest of the investing public. We're confident that we've been on the right side of this issue.
Q: What type of feedback have you gotten from market participants?
A: People are generally interested, and market participants are interested and have privately told us so, but there’s a conscious resistance to publicly come forward because of the CME’s dominance in the industry.
Q: What does ELX hope to achieve overall - in terms of market share of Treasury products?
A: We've been live now for a year. We've added customers, brought on a successful Eurodollar futures contract. We want to grow to become a company with greater product reach, and increase our market share. We're doing very well and we're in a very good position. We are growing, adding users and I believe we have proven ourselves as a real competitor to the CME. It would be a good thing for market participants and the futures industry if we get the EFF mechanism approved.
Q: How would you see this playing out if the CFTC gives its nod on the use of the EFF mechanism?
A: A number of market participants would use it. What the EFF allows is for market participants to access the best available price across markets without paying a double margin or facing delivery obligations to deliver on one market and take delivery on another.
Q: What is next for the exchange?.
A: [Without giving too much away] we have plans for enhancing liquidity; we plan to add new products, continue to diversify and increase our volume and open interest. Our Eurodollar futures contract was launched four months ago and has been a big success so we hope to keep up the momentum.
Neal Wolkoff is the CEO of ELX Futures, L.P. He was named to the position on Oct. 6, 2008. Previously, he had been CEO of the American Stock Exchange prior to its acquisition by NYSE. At issue as of late for ELX Futures is that an exchange for futures (EFF) block-trade mechanism offered by ELX Futures allows traders to move their Treasury futures positions from one exchange to the other. CME Group has claimed ELX's EFF violates CME's rules. Both exchanges have petitioned the Commodity Futures Trading Commission (CFTC) to decide the issue. Wolkoff talked with MarketsWiki Senior Editor/ Producer Christine Nielsen.
Q: So I'm trying to get a handle on where things stand with these petitions to the CFTC regarding EFFs. Could you first give me your impressions on that?
A: The submission of information is over, although the CFTC could ask for more information; but I can't speak for the agency. We’ve been pleased that the Commission has been responsive on the EFF issue and has publicly stated that EFFs do not violate any laws or regulations.
Q: Have you had a chance to read the interview we recently did with Foley & Lardner's Scott Early? What about this idea of a natural barrier disadvantage?
A: I would just preface this by saying that he (Scott Early) has been a well-respected regulated futures industry attorney for a number of years. By getting into economic theory and intellectual property, he steered away from his area of expertise. Plus, based on his statement that there is an intellectual property right in a product, the reality is that this does not exist. The reality is that there's nothing to patent or to copyright. We're not doing anything that a normal competitor wouldn't do. The CME is essentially a monopoly. There's nothing about ELX using this EFF mechanism that is illegal and this has never been an argument about intellectual property. The role of the exchanges includes promoting the best interest of the investing public. We're confident that we've been on the right side of this issue.
Q: What type of feedback have you gotten from market participants?
A: People are generally interested, and market participants are interested and have privately told us so, but there’s a conscious resistance to publicly come forward because of the CME’s dominance in the industry.
Q: What does ELX hope to achieve overall - in terms of market share of Treasury products?
A: We've been live now for a year. We've added customers, brought on a successful Eurodollar futures contract. We want to grow to become a company with greater product reach, and increase our market share. We're doing very well and we're in a very good position. We are growing, adding users and I believe we have proven ourselves as a real competitor to the CME. It would be a good thing for market participants and the futures industry if we get the EFF mechanism approved.
Q: How would you see this playing out if the CFTC gives its nod on the use of the EFF mechanism?
A: A number of market participants would use it. What the EFF allows is for market participants to access the best available price across markets without paying a double margin or facing delivery obligations to deliver on one market and take delivery on another.
Q: What is next for the exchange?.
A: [Without giving too much away] we have plans for enhancing liquidity; we plan to add new products, continue to diversify and increase our volume and open interest. Our Eurodollar futures contract was launched four months ago and has been a big success so we hope to keep up the momentum.
Senin, 04 Oktober 2010
ELX's Response Regarding EFF Issues
ELX's response to the letter from CBOT dated
September 10, 2010 regarding the EFF transaction and related Core
Principle 18 issues.
(Letter Obtained From ELX)
October 4, 2010
Richard A. Shilts, Acting Director, Division of Market Oversight Commodity Futures Trading Commission Three Lafayette Center 1155 21st, N.W. Washington, D.C. 20581 Re: ELX Futures, L.P./Exchange of Futures for Futures Rule Dear Mr. Shilts: ELX Futures, L.P. (“ELX”), submits this response to the letter from Kathleen Cronin of the CME Group, Inc. (“CME”) on behalf of CME’s subsidiary Chicago Board of Trade (“CBOT”) to you, dated September 13, 2010 (the “CBOT Letter”), regarding ELX Rule IV-15 (the “EFF Rule”), which has been approved by the Commission and which authorizes the execution of Exchanges of Futures for Futures (“EFFs”) on ELX. ELX and the CBOT have previously submitted various letters to the Commission regarding this matter; the CBOT Letter was filed in response to questions and requests for information made by the Commission and the Division of Market Oversight (“DMO”) to the CBOT, dated August 13, 2010. Despite the fact that the CBOT Letter covers some 29 single-spaced pages, plus an extensive appendix, it adds no new information or arguments to the debate. To the contrary, the CBOT Letter simply restates and elaborates on the same misleading assertions and distortions included in the CBOT’s prior letters with respect to the EFF Rule. The Commission should reject the CBOT’s latest submission and should take prompt action to require the CBOT to permit the execution of EFFs by market participants.
Because the CBOT Letter adds nothing new to the Commission’s consideration of the issues related to the EFF Rule, we do not believe it is necessary to respond to each point raised in that Letter. Instead, we will focus only on the most significant misstatements made by the CBOT about the EFF transaction. First, the CBOT argues, as it has in the past, that EFFs should be prohibited because they constitute “wash
Wolkoff Letter for ELX Futures, L.P.
Page 2 of 5
October 4, 2010
trades” that “negate market risk.” This is simply not true, as the CBOT well knows and understands. A wash trade, as reflected in the precedents cited in the CBOT Letter, is one in which a party appears to take a bona fide market position, and expose itself to market risk, while in fact creating only the appearance of trading and offsetting the original trade in a way that avoids taking any market risk. One of the principal decisions cited by the CBOT, therefore, states that “[t]he central characteristic of a wash sale is the intent to avoid making a bona fide transaction or taking a bona fide market position.” CBOT Letter, p. 9, citing In re Citadel Trading Co. of Chicago, Ltd. (CFTC, May 12, 1986). That is not the case with EFFs. An EFF involves a transaction in which a party establishes a bona fide position in a futures contract for the purpose of obtaining, not avoiding, the market exposure incurred by virtue of that position. The fact that the EFF involves a transfer of that position to another exchange in no way affects the status of the position as one that creates, not negates, bona fide market risk. For this reason, among others, the Commission – the federal agency with the authority and the responsibility to interpret and apply the CEA – has determined that EFFs are not wash trades. The CBOT cannot then usurp the Commission’s authority by determining not to allow EFFs because it believes – contrary to the express views of its regulator – that they are wash trades. Of course, as evidenced by practices on its affiliated exchanges, the CBOT and its parent company do not actually believe that EFFs are illegal wash trades, but are simply using this argument as a convenient smokescreen for their anti-competitive conduct. Second, the CBOT argues that EFFs are “non-competitive trades,” and are prohibited on this basis as well. Again, the CBOT well knows that there are a variety of non-competitive trades that are permissible, and completely legal, on every exchange, including the CBOT and its affiliated exchanges. These include exchanges of futures for physicals, exchanges of futures for swaps, exchanges for risk, block trades and others. By characterizing EFFs as non-competitive trades, CBOT is attempting to conflate the term “wash trades” with the term “non-competitive trades” and bootstrap its contention that EFFs are “non-competitive” into an argument that they are wash trades. This distortion should not be countenanced. A wash trade might be non-competitive, but not all non-competitive trades are necessarily wash trades. More to the point, a non-competitive trade is not necessarily illegal and the Commission, as well as the CBOT’s own affiliates, have found that EFFs are permissible under the CEA. CBOT’s contention that the Dodd-Frank Bill has changed the statutory landscape is also misleading. The section of the Dodd-Frank amendment cited by the CBOT to support this argument has been in the Act under standards for contract market designation for many years, 7 USC §7 (b)(3). Moving the provision from one section governing contract markets to another is not a substantive amendment.
Third, CBOT fails to respond to the Commission’s request that CBOT provide a detailed explanation for the assertion that “permitting EFFs would enable ELX to free ride on CBOT’s investments in exchange facilities” or “clearing facilities.” This is not surprising, because permitting EFFs would not involve ELX’s use of any CBOT
Wolkoff Letter for ELX Futures, L.P.
Page 3 of 5
October 4, 2010
facilities. To the extent that CBOT customers would use their facilities to either enter or exit positions on ELX, they would do so in the context of their relationships with CBOT, having nothing to do with ELX, and CBOT would be compensated as part of such transactions. CBOT’s argument that compulsory EFFs would allow rivals to free ride on CBOT’s efforts to develop new contracts might make sense if the creation of such contracts generated protectable intellectual property or otherwise amounted to significant product innovation. But they do not, and CBOT acknowledges as much in its submission. (CBOT Letter, p. 17.) CBOT’s position amounts to an unjustifiable request that the Commission excuse its anti-competitive rule because it provides a shield from competition that intellectual property law fails to provide. CBOT primarily argues that EFFs will allow ELX to free ride on CBOT’s “pool of liquidity” and “open interest.” But permitting EFFs that will allow market participants to move more efficiently between products offered by ELX and CBOT and the competing platforms offered by the competing markets does not raise any free rider issue at all. To the extent that CBOT provides a better trading platform, better execution, and better services to its customers, those customers will not be lured away by competition from ELX – regardless of whether EFFs are available. But if ELX offers a more attractive and competitive market that results in customers moving between the markets, lowering barriers to permit such movements will enhance not harm competition. Moreover, such customer movement does not involve free riding at all -- ELX has listed its own contracts and has developed the terms and trading conditions for those contracts. The EFF Rule does nothing more than permit market participants trading those contracts, if they wish to do so, to transfer their open positions to another exchange that lists similar or identical contracts. Indeed, it is the customers that own the open interest in any event, not the exchanges, and the EFF Rule merely permits the owners of the open interest to hold it in the venue of their choosing. The positions then become open positions on that other exchange and cannot be characterized as ELX improperly taking the other exchange’s liquidity. Accordingly, the EFF Rule will operate only to enhance overall market liquidity, to the benefit of all market participants, and will encourage and promote competition among competing markets.
Fourth, while the CBOT Letter contends that EFFs executed pursuant to the ELX Rule are illegal wash trades it fails to consider that substantially similar trades are executed on its affiliated exchange, the New York Mercantile Exchange (“NYMEX”) and are permissible. NYMEX has a long history of using EFFs, and transactions called by other names, but having substantially the same purpose. While the CBOT Letter discusses the earliest such use involving the International Petroleum Exchange (“IPE”) and NYMEX Brent contracts, subsequent examples have included the e-mini natural gas and crude oil contract EFF Rules allowing them to be converted to the larger physically delivered contracts, and a history of allowing brokered transitory EFP and EFS
Wolkoff Letter for ELX Futures, L.P.
Page 4 of 5
October 4, 2010
transactions to facilitate position transfers between the Intercontinental Exchange and NYMEX. While there may be limited distinctions between the original NYMEX EFF Rule and the ELX EFF rule, none of these distinctions are relevant to the CBOT’s wash trade analysis. In addition to the other CME transactions which mirror the purpose of the EFF, other CME markets allow transitory EFRP transactions to establish or offset positions in foreign exchange futures, agriculture futures, precious metals futures, and hundreds of untraded, cleared only energy “futures” processed through the Clearport service. Ms. Cronin’s statement to Chairman Gensler that “all matched, prearranged transactions designed to negate market risk are prohibited by the CEA” ignores all these other examples under the CME roof that similarly meet her description of unlawful transactions. Her assertion is simply untrue and was already correctly found to be without merit by two CFTC Division heads and the full Commission. Therefore, the CBOT cannot claim that EFFs executed on ELX are illegal without reaching the same conclusion with respect to the NYMEX transactions, and the many others it countenances. Of course, CBOT does not reach that conclusion simply because it knows that the ELX EFFs are not illegal; its actual, and completely transparent, goal is to stifle competition by claiming that EFFs are illegal when it is convenient for it to make that claim. The arbitrary contrast between the CBOT’s views on the EFF Rule and its views on the NYMEX EFF rules and transitory EFRPs in other markets ultimately reveal its true anticompetitive intent and objectives.
The CBOT Letter fails to address, as the Commission and DMO requested, why its reasons for opposing the EFF transaction do not violate Core Principle 18. Indeed, the CBOT Letter makes clear that its reasons are driven by an anti-competitive motivation. CME’s views on wash trades, which appear to apply exclusively to ELX’s trades, but not CME’s, have been discredited by the Commission. Proffering a legal argument that our regulator has already twice dismissed in connection with this very issue, illuminates the anti-competitive motivation which is at the heart of CME’s anti-EFF posture. CME’s untrue claims of free-riding articulate how the EFF could harm the CME, but CME makes no real effort to address how the EFF does anything but benefit customers and the marketplace. Again and again the CBOT Letter reflects a concern for the CME’s own business issues. However, by arguing to protect its revenue base, rather than acting for the best interests of the market, the CBOT Letter fully supports a finding of anti-competitive intent, especially for an exchange with a market share above 90%.
Wolkoff Letter for ELX Futures, L.P.
Page 5 of 5
October 4, 2010
We would of course be pleased to discuss these issues further with the Commission or its staff. We very much appreciate your consideration of and attention to this important matter. Sincerely, cc: Mr. David Stawick (Secretary) Mr. Gary Gensler (Chairman) Mr. Michael Dunn (Commissioner) Mr. Bart Chilton (Commissioner) Ms. Jill Sommers (Commissioner) Mr. Scott O’Malia (Commissioner) Mr. Dan Berkovitz (General Counsel)
September 10, 2010 regarding the EFF transaction and related Core
Principle 18 issues.
(Letter Obtained From ELX)
October 4, 2010
Richard A. Shilts, Acting Director, Division of Market Oversight Commodity Futures Trading Commission Three Lafayette Center 1155 21st, N.W. Washington, D.C. 20581 Re: ELX Futures, L.P./Exchange of Futures for Futures Rule Dear Mr. Shilts: ELX Futures, L.P. (“ELX”), submits this response to the letter from Kathleen Cronin of the CME Group, Inc. (“CME”) on behalf of CME’s subsidiary Chicago Board of Trade (“CBOT”) to you, dated September 13, 2010 (the “CBOT Letter”), regarding ELX Rule IV-15 (the “EFF Rule”), which has been approved by the Commission and which authorizes the execution of Exchanges of Futures for Futures (“EFFs”) on ELX. ELX and the CBOT have previously submitted various letters to the Commission regarding this matter; the CBOT Letter was filed in response to questions and requests for information made by the Commission and the Division of Market Oversight (“DMO”) to the CBOT, dated August 13, 2010. Despite the fact that the CBOT Letter covers some 29 single-spaced pages, plus an extensive appendix, it adds no new information or arguments to the debate. To the contrary, the CBOT Letter simply restates and elaborates on the same misleading assertions and distortions included in the CBOT’s prior letters with respect to the EFF Rule. The Commission should reject the CBOT’s latest submission and should take prompt action to require the CBOT to permit the execution of EFFs by market participants.
Because the CBOT Letter adds nothing new to the Commission’s consideration of the issues related to the EFF Rule, we do not believe it is necessary to respond to each point raised in that Letter. Instead, we will focus only on the most significant misstatements made by the CBOT about the EFF transaction. First, the CBOT argues, as it has in the past, that EFFs should be prohibited because they constitute “wash
Wolkoff Letter for ELX Futures, L.P.
Page 2 of 5
October 4, 2010
trades” that “negate market risk.” This is simply not true, as the CBOT well knows and understands. A wash trade, as reflected in the precedents cited in the CBOT Letter, is one in which a party appears to take a bona fide market position, and expose itself to market risk, while in fact creating only the appearance of trading and offsetting the original trade in a way that avoids taking any market risk. One of the principal decisions cited by the CBOT, therefore, states that “[t]he central characteristic of a wash sale is the intent to avoid making a bona fide transaction or taking a bona fide market position.” CBOT Letter, p. 9, citing In re Citadel Trading Co. of Chicago, Ltd. (CFTC, May 12, 1986). That is not the case with EFFs. An EFF involves a transaction in which a party establishes a bona fide position in a futures contract for the purpose of obtaining, not avoiding, the market exposure incurred by virtue of that position. The fact that the EFF involves a transfer of that position to another exchange in no way affects the status of the position as one that creates, not negates, bona fide market risk. For this reason, among others, the Commission – the federal agency with the authority and the responsibility to interpret and apply the CEA – has determined that EFFs are not wash trades. The CBOT cannot then usurp the Commission’s authority by determining not to allow EFFs because it believes – contrary to the express views of its regulator – that they are wash trades. Of course, as evidenced by practices on its affiliated exchanges, the CBOT and its parent company do not actually believe that EFFs are illegal wash trades, but are simply using this argument as a convenient smokescreen for their anti-competitive conduct. Second, the CBOT argues that EFFs are “non-competitive trades,” and are prohibited on this basis as well. Again, the CBOT well knows that there are a variety of non-competitive trades that are permissible, and completely legal, on every exchange, including the CBOT and its affiliated exchanges. These include exchanges of futures for physicals, exchanges of futures for swaps, exchanges for risk, block trades and others. By characterizing EFFs as non-competitive trades, CBOT is attempting to conflate the term “wash trades” with the term “non-competitive trades” and bootstrap its contention that EFFs are “non-competitive” into an argument that they are wash trades. This distortion should not be countenanced. A wash trade might be non-competitive, but not all non-competitive trades are necessarily wash trades. More to the point, a non-competitive trade is not necessarily illegal and the Commission, as well as the CBOT’s own affiliates, have found that EFFs are permissible under the CEA. CBOT’s contention that the Dodd-Frank Bill has changed the statutory landscape is also misleading. The section of the Dodd-Frank amendment cited by the CBOT to support this argument has been in the Act under standards for contract market designation for many years, 7 USC §7 (b)(3). Moving the provision from one section governing contract markets to another is not a substantive amendment.
Third, CBOT fails to respond to the Commission’s request that CBOT provide a detailed explanation for the assertion that “permitting EFFs would enable ELX to free ride on CBOT’s investments in exchange facilities” or “clearing facilities.” This is not surprising, because permitting EFFs would not involve ELX’s use of any CBOT
Wolkoff Letter for ELX Futures, L.P.
Page 3 of 5
October 4, 2010
facilities. To the extent that CBOT customers would use their facilities to either enter or exit positions on ELX, they would do so in the context of their relationships with CBOT, having nothing to do with ELX, and CBOT would be compensated as part of such transactions. CBOT’s argument that compulsory EFFs would allow rivals to free ride on CBOT’s efforts to develop new contracts might make sense if the creation of such contracts generated protectable intellectual property or otherwise amounted to significant product innovation. But they do not, and CBOT acknowledges as much in its submission. (CBOT Letter, p. 17.) CBOT’s position amounts to an unjustifiable request that the Commission excuse its anti-competitive rule because it provides a shield from competition that intellectual property law fails to provide. CBOT primarily argues that EFFs will allow ELX to free ride on CBOT’s “pool of liquidity” and “open interest.” But permitting EFFs that will allow market participants to move more efficiently between products offered by ELX and CBOT and the competing platforms offered by the competing markets does not raise any free rider issue at all. To the extent that CBOT provides a better trading platform, better execution, and better services to its customers, those customers will not be lured away by competition from ELX – regardless of whether EFFs are available. But if ELX offers a more attractive and competitive market that results in customers moving between the markets, lowering barriers to permit such movements will enhance not harm competition. Moreover, such customer movement does not involve free riding at all -- ELX has listed its own contracts and has developed the terms and trading conditions for those contracts. The EFF Rule does nothing more than permit market participants trading those contracts, if they wish to do so, to transfer their open positions to another exchange that lists similar or identical contracts. Indeed, it is the customers that own the open interest in any event, not the exchanges, and the EFF Rule merely permits the owners of the open interest to hold it in the venue of their choosing. The positions then become open positions on that other exchange and cannot be characterized as ELX improperly taking the other exchange’s liquidity. Accordingly, the EFF Rule will operate only to enhance overall market liquidity, to the benefit of all market participants, and will encourage and promote competition among competing markets.
Fourth, while the CBOT Letter contends that EFFs executed pursuant to the ELX Rule are illegal wash trades it fails to consider that substantially similar trades are executed on its affiliated exchange, the New York Mercantile Exchange (“NYMEX”) and are permissible. NYMEX has a long history of using EFFs, and transactions called by other names, but having substantially the same purpose. While the CBOT Letter discusses the earliest such use involving the International Petroleum Exchange (“IPE”) and NYMEX Brent contracts, subsequent examples have included the e-mini natural gas and crude oil contract EFF Rules allowing them to be converted to the larger physically delivered contracts, and a history of allowing brokered transitory EFP and EFS
Wolkoff Letter for ELX Futures, L.P.
Page 4 of 5
October 4, 2010
transactions to facilitate position transfers between the Intercontinental Exchange and NYMEX. While there may be limited distinctions between the original NYMEX EFF Rule and the ELX EFF rule, none of these distinctions are relevant to the CBOT’s wash trade analysis. In addition to the other CME transactions which mirror the purpose of the EFF, other CME markets allow transitory EFRP transactions to establish or offset positions in foreign exchange futures, agriculture futures, precious metals futures, and hundreds of untraded, cleared only energy “futures” processed through the Clearport service. Ms. Cronin’s statement to Chairman Gensler that “all matched, prearranged transactions designed to negate market risk are prohibited by the CEA” ignores all these other examples under the CME roof that similarly meet her description of unlawful transactions. Her assertion is simply untrue and was already correctly found to be without merit by two CFTC Division heads and the full Commission. Therefore, the CBOT cannot claim that EFFs executed on ELX are illegal without reaching the same conclusion with respect to the NYMEX transactions, and the many others it countenances. Of course, CBOT does not reach that conclusion simply because it knows that the ELX EFFs are not illegal; its actual, and completely transparent, goal is to stifle competition by claiming that EFFs are illegal when it is convenient for it to make that claim. The arbitrary contrast between the CBOT’s views on the EFF Rule and its views on the NYMEX EFF rules and transitory EFRPs in other markets ultimately reveal its true anticompetitive intent and objectives.
The CBOT Letter fails to address, as the Commission and DMO requested, why its reasons for opposing the EFF transaction do not violate Core Principle 18. Indeed, the CBOT Letter makes clear that its reasons are driven by an anti-competitive motivation. CME’s views on wash trades, which appear to apply exclusively to ELX’s trades, but not CME’s, have been discredited by the Commission. Proffering a legal argument that our regulator has already twice dismissed in connection with this very issue, illuminates the anti-competitive motivation which is at the heart of CME’s anti-EFF posture. CME’s untrue claims of free-riding articulate how the EFF could harm the CME, but CME makes no real effort to address how the EFF does anything but benefit customers and the marketplace. Again and again the CBOT Letter reflects a concern for the CME’s own business issues. However, by arguing to protect its revenue base, rather than acting for the best interests of the market, the CBOT Letter fully supports a finding of anti-competitive intent, especially for an exchange with a market share above 90%.
Wolkoff Letter for ELX Futures, L.P.
Page 5 of 5
October 4, 2010
We would of course be pleased to discuss these issues further with the Commission or its staff. We very much appreciate your consideration of and attention to this important matter. Sincerely, cc: Mr. David Stawick (Secretary) Mr. Gary Gensler (Chairman) Mr. Michael Dunn (Commissioner) Mr. Bart Chilton (Commissioner) Ms. Jill Sommers (Commissioner) Mr. Scott O’Malia (Commissioner) Mr. Dan Berkovitz (General Counsel)
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