CFTC: ELX EFFs not prohibited by CEA

The Commodity Futures Trading Commission (CFTC) on Friday, August 13, 2010, sent a letter to CME Group, Inc. regarding a Chicago Board of Trade (CBOT) self-certified Market Regulation Advisory Notice issued on October 19, 2009. In that notice, CBOT stated that its rules do not permit the execution of exchange of futures for futures (EFF) transactions. The notice was issued shortly after the CFTC approved an ELX Futures (ELX) rule authorizing participants on ELX to carry out EFF transactions. The Commission’s August 13 letter supports a previous CFTC staff letter regarding this matter.

CBOT justified its action on the grounds that, in its view, EFF transactions are not supported by CFTC precedent and are prohibited under the Commodity Exchange Act (CEA) and CFTC regulations.

The Commission has reviewed the matter and has found that ELX’s EFF transactions are not wash sales and are consistent with Commission precedent. Further, the Commission has found that ELX’s EFF transactions are neither prohibited nor mandated by Core Principle 9. Thus, ELX’s EFFs are not prohibited by the CEA or Commission regulations. The Commission also has directed staff to separately analyze whether CBOT’s October 19, 2009 notice was consistent with the requirements of CEA Core Principle 18 (antitrust considerations). In that regard, CFTC Division of Market Oversight staff simultaneously sent a separate letter to CBOT addressing the Core Principle 18 analysis. Neither the Commission nor Commission staff has made any determination regarding this analysis.

In a statement on the CFTC letter, ELX CEO Neal Wolkoff said, "The CFTC has once again found ELXs EFF transactions to comply with all legal and regulatory requirements contrary to the assertions of our competitor. We cannot think of any reason why the EFF transaction does not benefit customer and market interests, and believe that the CME Group is acting solely for its own competitive interests in opposing the EFF. ELX intends to vigorously pursue full acceptance of the EFF and will assist the Commission and its staff in any way to complete its anti-trust review of the rationale behind the treatment of EFFs."

CFTC letter to CME Group:

RE: Chicago Board of Trade Rules and Interpretations Prohibiting the Exchange of Futures for Futures

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