CME Group responds to CFTC on EFFs

CME Group states that its position of not accepting exchange of future for futures transactions (EFFs) is consistent with the Commodity Exchange Act (CEA) in a letter in response to a January letter from the Commodity Futures trading Commission (CFTC) asking for further justification of the CME’s position on EFFs.

The response that was posted on the CFTC Website on Wednesday asks the Commission to deny an ELX Futures’ request for a stay of the CME Market Regulation Advisory Notice that points out CME Group’s rules on exchange for related positions (EFRP) transactions including EFFs. Among its arguments, CME points out that accepted EFRP transactions such as exchange for physicals (EFPs) include basis risk while the sole purpose of EFFs is to move open interest from CBOT to ELX while negating market risk.

In response to the CME letter ELX noted, “We are puzzled by a 25-page letter that the CME wrote to the CFTC that does little but undermines the CFTC staff and distorts the facts. The CME's counsel attacks the CFTC staff's well-reasoned letter of Jan. 22 and we fail to see how this letter brings any new and useful information to the debate. The CFTC has already ruled that the CME misinterpreted the Commodity Exchange Act and EFFs are not wash trades.”

The controversy involves the identical Treasury futures contracts traded at the Chicago Board of Trade and on ELX Futures. ELX Futures' EFF rule, which was approved by the CFTC, would allow someone to move Treasury positions from one clearinghouse to the other through an EFF.

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