UPDATE: CME Defends Futures Market, Seeks More Cooperation

The executive chairman of CME Group Inc. (CME) on Tuesday called for improved coordination between cash and derivative markets, but said regulators should pause before any crackdown on high-frequency trading.

The world's largest futures exchange reiterated that its trading hadn't "contributed" to the stock market turmoil on May 6.

Futures-market operators have been on the defensive since last week after some stock exchange executives suggested the wild gyrations may have been triggered by activity in CME's electronically traded S&P 500 contract.

Terry Duffy, CME's executive chairman, hit back in testimony before lawmakers later Tuesday, stating that liquidity and spreads on its S&P E-mini futures contracts were "significantly better" during the turmoil than those of related products traded on other exchanges.

Duffy's testimony included a recommendation that circuit breakers to prevent wild price swings be harmonized across all markets.

He also called for the CME's "stop price logic functionality"--a five-second pause in trading to rebuild liquidity--be adopted across all markets.

"While futures markets functioned properly, it is clear that opportunities exist to enhance the functioning of securities markets and to better coordinate across securities, futures and options markets during times of market stress," Duffy said in a statement ahead of his appearance before the House Financial Services Subcommittee.

While Duffy's proposals are broadly in line with those being touted by stock exchange chiefs, he also railed against the targeting of high-frequency traders as a potential "cause" of last week's events.

He said the trading method had provided liquidity during last week's events, and any restrictions could prove "harmful" during normal and tumultuous markets.

Duffy said these traders could shift their business overseas following any regulatory crackdown, echoing similar warnings CME has made about energy and other markets.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

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