The CFTC ruled, again, that ELX’s exchange of futures for futures (EFF) transactions are not wash sales and are consistent with commission precedent in a letter on Aug. 16, but ELX’s fight on the matter is not over because CME Group says it will continue to prohibit EFF transactions. EFF transactions allow customers to move futures contract positions between two exchanges.
In October 2009, the Chicago Board of Trade (CBOT), part of CME Group, issued a Regulatory Advisory Notice stating its rules do not permit EFFs. After that, the CFTC reviewed the matter. In a statement, CME Group said the CFTC’s Aug. 16 letter does not change its rules and it will still prohibit EFFs, which it said would reduce transparency and price discovery in CBOT Treasury futures markets.
ELX claims that CME Group is acting solely in its own competitive interests. “We don’t expect that these transactions will overwhelm the market but [if] available [they] will allow brokers to do a better job for their customers and will allow customers to obtain better prices and have more flexibility,” Neal Wolkoff, CEO of ELX, says.
Paul Zubulake, senior analyst at Aite Group, says there’s still a lack of demand for this type of transaction. “Things will stay the way they are unless a major end user demands that these contracts get accepted by the CME,” he says.
Wolkoff could not estimate the number of transactions that are affected by the restrictions but adds that there is demand for them. “I have requests that represent a significant portion of customers [who use the markets],” he says.
The timeline for the CFTC to resolve the dispute is uncertain. Wolkoff says CME Group has until mid-September to respond to CFTC concerns. “We’ll have to see what the CFTC does once it receives that information,” he says.