In a speech before the Managed Funds Association on June 24, Gensler said, “OTC derivatives should be fungible and able to be transferred between one exchange or electronic trading system to another.” Gensler did not elaborate further but fungibility has long been a bone of contention between established exchanges and certain clearing members.
While only referring to cleared OTC products, the topic of fungibility is sensitive especially as it came a few weeks before the launch of ELX Futures, which will compete with CME Group’s Treasury complex. A large amount of OTC trading involves fixed income products that are traded against Treasury futures.
ELX CEO Neal Wolkoff in response to Gensler’s comments said, “To the extent any OTC business moves to an exchange, competition among marketplaces will be key to preserve its best characteristics. We welcome the Chairman’s remarks, and look forward to his bringing a fresh perspective to the futures markets.”
CME Group CEO Craig Donohue says his understanding of Gensler’s remark is that “[counterparties] have the ability to establish and extinguish positions through a multiplicity of platforms or execution environments if those platforms and participants clear through the same clearing platform.” Donohue adds that that is consistent with the CME business model though not what is commonly understood as fungibility.
Regarding whether excess speculation is to blame energy market volatility, Donohue says, “The CFTC has already done a very thorough, very comprehensive and non-political economic analysis of the data and concluded that there is no evidence whatsoever [linking excessive speculation with the 2008 spike] so that will be part of the discussion.” He adds, “Most research analysts have concluded that it is primarily supply and demand fundamentals, macro economic issues and currency fluctuations that have impacted pricing. I haven’t yet seen a true empirically based study or economic analysis that has concluded anything other than there is no correlation.”
Gensler also said the CFTC would make enhancements to its weekly Commitments of Traders (COT) report.