On the eve of the annual Futures Industry Association’s Futures and Options Expo there is a lot of activity and rumors floating around.
Yesterday’s report in Crain’s that CME Group and the Chicago Board Options Exchange had informal talks about a possible acquisition of CBOE by the CME was somewhat underwhelming as many had assumed that such interest was already being explored. Most domestic options exchanges have found someone to partner with and CBOE, the prettiest girl left at the dance, would be an obvious target once it completes its long anticipated demutualization, which it is close to doing.
CME’s largest competitor, Eurex, has a US. based options exchange (the International Securities Exchange, ISE) and a move on CBOE would be a logical step. However, given how long the CBOE membership have waited, the CME or some other bidder (ICE perhaps) would need to lift CBOE members off their feet to preempt a much anticipated IPO.
More interesting is the battle between ELX Futures and CME Group regarding ELX’s “EFF rule”. EFF stands for exchange of futures for futures and ELX announced on Oct. 14 that the rule proposal was approved by the Commodity Futures Trading Commission (CFTC). The following day a CME spokesperson was quoted as saying “CME, as a designated contract market, has had a “long-standing policy” prohibiting “contingent, transitory trades” such as those described by the ELX rule.”
ELX took exception to this characterization noting the following day, “EFF trades are not transitory or contingent trades… Further, CME has openly permitted transitory EFRP trades, as a matter of course.”
The statement went on to say, “Rule enforcement powers cannot be used arbitrarily to protect competitive position or share price. Long-standing policies, even when accurately set forth, do not justify the use of disciplinary sanctions to keep a lawfully approved rule from being used for its intended purpose.”
The official response from the CME is, “CME rules permit a firm or customer to open or liquidate a position by means of a legitimate block trade. However, in each case CME rules require, in accordance with the requirements of the CEA, that the block trade be a ‘legitimate’ rather than a ‘fictitious’ trade. The ELX rule does not impact how we operate our markets.”
In essence the CME is saying that the although the rule was approved, it doesn’t mean they can be compelled to accept such trades in their clearing house.
The rule does seem to be a backdoor effort to get to fungibility. It would be helpful if CFTC Chairman Gary Gensler offers an opinion on this controversy when he speaks tomorrow. They did approve the rule so it would be appropriate for him to shed some light on it.
Tags: CFTC, CME Group, ELX Futures, Gary Gensler
