CME Group Statement

Feb 06, 2008, 00:00 ET from CME Group

    CHICAGO, Feb. 6 /PRNewswire-FirstCall/ -- CME Group welcomes the
 opportunity to participate in industry discussions concerning market
 structure and the organization of clearing and settlement services. CME
 Group believes that market driven solutions and a range of choice in
 execution and clearing services best serves the interests of market
 participants. In execution services, the global futures and options
 industry offers a wide range of choice, from open auctions, central limit
 order books and call markets on fully regulated exchanges, exempt platforms
 and other markets with varying levels of regulatory oversight, depending on
 the types of products, customers and trading interests involved. Similarly,
 the global derivatives industry offers trading and clearing services
 through both exchange owned, vertically integrated and independently
 operated clearing organizations, as well as bilateral trading with no
 central counterparty clearing services, or central counterparty clearing
 services for OTC derivatives transactions that are unbundled from execution
     CME Group believes that Congress, in enacting the Commodity Futures
 Modernization Act of 2000, appreciated the merits of a free market solution
 to the organization and ownership of clearing houses. It rejected
 suggestions that clearing houses be taken from exchanges and converted into
 user owned utilities. Congress adopted an extremely flexible approach to
 regulation that promoted innovation and competition by avoiding a
 one-size-fits-all model. More importantly, CME Group believes that the
 Commodity Futures Trading Commission, the House and Senate Agriculture
 Committees and Congress itself, understands the following critical
 distinctions between securities and options markets versus derivatives and
 futures markets:
-- Vertical Clearing is the Industry Standard. Unlike domestic stock and options exchanges, domestic futures exchanges compete directly with non-U.S. futures exchanges, where 70% of all futures and options contracts traded globally are cleared on or through exchange owned or controlled clearing facilities. Any failure to recognize that fact would create an un-level playing field for U.S. futures exchanges at a time when U.S. futures exchanges are the strongest example of how to maintain our overall competitiveness in global financial markets -- a key area of concern in recent times. -- Horizontal Clearing Providers do not Permit Fungibility. Even independent clearing providers have commercial agreements with their exchange and platform customers that do not permit fungibility across competing contracts without the consent of the exchange/platform customer. The absence of cross-exchange fungibility has not impaired innovation or competition in the derivative industry. New product and system innovation is unparalleled and customer fees and costs are close to insignificant in relation to the value of the services performed. -- Current Market Trends Favor Increased Vertical Clearing. The current trend in the marketplace is toward integration of clearing facilities into futures and options markets (e.g., ICE's acquisition of NYBOT, NYCC Clearing and its announced separation from LCH.Clearnet and the creation of ICE Clear in Europe). This trend is not an accident. Markets operate more efficiently when they control their own clearing operations. -- Derivatives and Futures Products are Inherently Different than Securities and Equities Options Products. Unlike securities and equity options instruments, futures products are not identical. Unlike equity exchanges that simply trade an instrument issued by a corporation, futures exchanges invest considerable time and capital in creating new products and designing trading methods and specifications that appeal to customers. -- Government Does Not Control Privately Owned Clearing Facilities. Vertically-owned clearing houses already exist and cannot simply be "taken" by government action. The futures industry has long permitted the development and growth of exchange owned clearing houses. Any decision that would result in the taking of that property would require extensive legislative review and discussion to ascertain the impact such a decision would have on the ultimate users of futures products. -- Publicly Owned Clearing Houses Better Serve the Public Interest. There is no public purpose served by attempting to transfer ownership of exchange-owned clearing facilities to intermediaries who will simply operate such facilities for their own benefit and not the benefit of market users. -- Exchange Owned Clearing Houses Enhance Transparency and Reduce Systemic Credit Risk. Intermediaries may limit central counterparty clearing services to selected products and markets, limiting greater transparency and exacerbating credit risks in swap and credit markets in order to maintain proprietary trading profits or prime brokerage revenue streams at the expense of market integrity and the safety and soundness of our financial markets. -- Futures Exchanges Generally Offer Lower Total Transaction Costs than Securities and Equity Options Markets in Comparable Products. Claims that independent clearing arrangements in futures markets will increase market efficiency are false. Evidence amply demonstrates that total liquidity costs in futures and options markets are considerably lower than in securities and equity options markets. Moreover, decreased spreads in equity options markets following multiple listing initiatives reflect the increased competition associated with breaking down designated primary market maker or specialist order allocations or trading preferences that increased transaction costs for customers in those markets. Unlike securities and equity options markets, futures exchanges do not employ such systems. CME Group will hold a conference call to discuss this topic at 12:30 PM CST today. Dial in numbers are as follows: Domestic -- 1-888-233-8078; International -- 1-913-312-1399. A live audio Webcast of the call will be available on the Investor Relations section of CME Group's Web site at An archived recording will be available for up to two months after the call. CME Group ( is the world's largest and most diverse exchange. Formed by the 2007 merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), CME Group serves the risk management needs of customers around the globe. As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on its trading floors. CME Group offers the widest range of benchmark products available across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, agricultural commodities, and alternative investment products such as weather and real estate. CME Group is traded on the New York Stock Exchange and NASDAQ under the symbol "CME." The Globe logo, CME, Chicago Mercantile Exchange, CME Group, Globex and E-mini, are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. Standard & Poor's, S&P 500 and S&P, S&P MidCap 400, Standard & Poor's Depositary Receipts and SPDR are trademarks of The McGraw-Hill Companies, Inc. NASDAQ, NASDAQ-100 and the NASDAQ-100 Index are trademarks of The Nasdaq Stock Market, Inc. Nikkei and Nikkei 225 are trademarks of Nihon Keizai Shimbun Inc. The Russell 2000 Index and Russell 1000 Index are registered trademarks of Frank Russell Co. TRAKRS and Total Return Asset Contracts are trademarks of Merrill Lynch & Co., Inc. GSCI is a trademark of Goldman Sachs & Co. Morgan Stanley Capital International, MSCI, and EAFE are trademarks of MSCI. FTSE/Xinhua China 25 is a trademark of FTSE Xinhua Index Limited. Dow Jones and Dow Jones Industrial Average are trademarks of Dow Jones & Company, Inc. CDR Liquid 50 NAIG is a trademark of Credit Derivatives Research LLC. These trademarks are used herein under license. All other trademarks are the property of their respective owners. Further information about CME Group and its products can be found at CME-G