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House Postpones Hearing on Eurex US, CFTC Slow Tra

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WASHINGTON (–A subcommittee of the U.S. House of Representatives has postponed a hearing at which it had planned to consider policy questions arising out of the application of U.S. Futures Exchange LLC for designation as a contract market.

The hearing had been scheduled for 2 P.M. Oct. 16 before the General Farm Commodities and Risk Management subcommittee of the Agriculture Committee. The committee’s chair is Bob Goodlatte (R-Va.), and the subcommittee’s chair is Jerry Moran (R-Kan.) A spokesman for Rep. Moran said last Wednesday that the hearing was postponed in response to an announcement by the Commodity Futures Trading Commission that it will be considering this application outside the “fast track” market designation procedure it originally had intended to follow. The subcommittee members will avail themselves of the greater preparation time made possible by that slower track, the spokesman said.

US Futures Exchange LLC, which would be, if established according to plan, the Chicago offshoot of Eurex, intends to compete head-to-head with the Chicago Board of Trade in listing some products that are already trading in large volume on CBOT. A spokesman for Eurex, Uwe Velten, said last week that the company is disappointed by this postponement. “We would have loved to have explained to the people at the hearing how our growth model will grow the American market. We have already more than 100 locations in the U.S., trading firms.”

In removing Eurex US from the fast track, the CFTC said that it is acting “to ensure that it has an adequate opportunity to consider fully the issues presented by the exchange’s application.” The CFTC statement also said that “the cooperation between the [applicant] and Commission staff to date has been productive” and that no implication ought to be drawn from the non-fastness of this track that the CFTC has found any issues which would preclude the designation of the applicant as a contract market.

Also, Oct. 14, the Futures Industry Association released the text of a statement that its president is prepared to make before the subcommittee, when the hearing does go forward.

In that statement, John M. Damgard asserted that the creation of a U.S. subsidiary for Eurex is a logical next step in the evolution of a global derivatives marketplace. “Eurex is essentially offering to repatriate a significant portion of its volume that is attributable to U.S. participants,” he said. “This can only be good news for U.S. market participants and their intermediaries” such as the futures commission merchants who make up FIA membership.

In Mr. Damgard’s view, there are no new policy issues resulting from the link between Eurex and the proposed new exchange. “Nasdaq-Liffe, which was approved as a contract market in August 2001, was initially 50 percent owned by Liffe,” a United Kingdom exchange, and has been 100% owned by Liffe since July 2003. Furthermore, both Liffe and Eurex are institutions with which U.S. regulators have had previous opportunities to become familiar.

Eurex, TCC and a Lawsuit

Eurex announced its plans for the Chicago operation in September Previous HedgeWorld Story. As its spokesmen said at that time, those plans involve an equity partnership with The Clearing Corporation, formerly the Board of Trade Clearing Corporation, and that partnership requires that TCC’s shareholders/members vote on a restructuring plan.

The restructuring vote, Mr. Velten said, “is very important for The Clearing Corporation, not only for us, because they need to be open, to modernize.”

Accordingly, early Oct. 14 (before the CFTC or subcommittee announcements), Eurex filed an antitrust lawsuit against the Chicago Board of Trade and the Chicago Mercantile Exchange which, Eurex claims, is conspiring to scuttle the TCC restructuring plan Previous HedgeWorld Story.

In a statement issued late on Oct. 14, the president of the CBOT, Bernard Dan, said that exchange had not yet been served with a copy of this complaint. “However,” he added, “from our reading of the press release issued by Eurex which summarizes the lawsuit, we do not believe Eurex US’s lawsuit against the CBOT and CME has any merit.”

The trans-Atlantic animosity may be expected to deepen. Last week, a London paper quoted the incoming chief executive of the CME as asking rhetorically, “Can you imagine a situation where somebody was running the New York Stock Exchange from Afghanistan and perhaps engaged in malfeasance or improprieties of a substantial nature…?”

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