US Backs ELX Move On Treasury Futures' Migration
October 14 2009 - 11:42AM
Dow Jones News
U.S. regulators on Wednesday approved a new rule proposed by
start-up exchange ELX Futures LP, letting traders move Treasury
derivatives positions between two clearinghouses.
The move is a boost for ELX, which is trying to wrest Treasury
futures trade from the dominant CME Group Inc. (CME), and has so
far taken about 2.5% of the market since its July launch.
U.S. futures regulation allows exchanges to clear their own
products in-house, requiring traders to buy and sell contracts at
the same venue; in securities and options markets investors can put
on a position at one exchange and take it off at another, a
practice known as fungibility.
Improved fungibility in futures has been a goal of ELX as it
challenges CME, and Wednesday's move by the Commodity Futures
Trading Commision is a slight step forward.
The approval by the CFTC of the Exchange of Futures for Futures
rule, or EFF, could help investors trading lookalike Treasury
futures contracts at CME and ELX offset positions held at the two
markets, according to ELX.
ELX said it could also help traders avoid margin calls where
there is no market risk, or avoid making and taking delivery if the
investor holds long and short positions at different markets.
Market participants looking to do an Exchange of Futures for
Futures transaction would privately negotiate to buy and sell
contracts on two exchanges - for example, one trader might buy 100
December-dated futures contracts on the 30-year Treasury bond from
a second trader at ELX.
At the same time, the second trader would buy 100 December
30-year bond futures from the first trader at CME. The traders'
clearing firms would then report the transaction to CME's
clearinghouse and the Options Clearing Corp., which clears trades
for ELX.
ELX Chief Executive Neal Wolkoff in a statement welcomed the
CFTC approval, with the new rule "enhancing competition and
substantially improving liquidity" for the new exchange.
A spokesman for CME said that ELX's EFF rule "does not impact
how we operate our markets," and essentially expands the existing
CFTC rule framework to cover ELX.
ELX, backed by a group of banks, trading firms and technology
companies, is seeking competitive edges as it goes up against
Chicago-based CME and faces another rival in NYSE Euronext (NYX),
which is developing U.S. interest rate derivatives as part of an
alliance with the Depository Trust and Clearing Corp.
ELX offers markets in two-, five-, ten- and 30-year Treasury
futures, mirroring core markets of CME.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com