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ELX Futures Sends Letter to CFTC Saying CME Statement on EFFs Misleading

On Tuesday, January 26, 2010, the CME Group released a press release that contained several misleading statements which gave the impression that the threat of disciplinary action for using ELX’s approved EFF rule was still in force notwithstanding the letter from CFTC Staff the prior day.

(ELX Letter to CFTC: https://www.elxfutures.com/getdoc/c325864c-6f6a-49b7-b05c-98ee89333cdf/CFTC-EFF-letter-012710_FINAL.aspx )

In a letter today to the CFTC, Neal Wolkoff, Chief Executive Officer of ELX Futures, said, “The CME is saying that its ability to still prosecute its member firms is supported by the CFTC when in fact the letter invalidated the justification for prosecution.”

(CFTC Letter to CME: https://www.elxfutures.com/getdoc/41214997-3f65-4a58-ad8a-88efd5cfa5a8/CFTC-Letter-to-CBOT-Re-Rules-and-Interpretatio-(1).aspx)

Mr. Wolkoff further specified the basis for claiming the press release is materially misleading.

“The announcement mischaracterizes the EFF Rule and would reasonably be expected to confuse the market.

1) CME has not been asked to stop enforcing its rules, but the fact that it still can enforce its rules is completely beside the point. The CME’s Market Advisory and public statements claimed that the EFF violated the Commodity Exchange Act. The CME still implies that the EFF is violative by raising the specter that the transaction would violate CME’s ‘trade practice rules.’ However, CME has been told that its Advisory, which was self-certified and has the status of a rule, has no basis of support. The CME’s announcement would have the reader believe that the EFF is still illegal, and that CME's market advisory can still be the basis for rule enforcement action even though its justification was found to be meritless. We object to CME enforcing the Market Advisory, not its other rules which are irrelevant to the EFF;

2) The statement that CME has not received direction from ELX to transfer positions mischaracterizes the EFF transaction. An EFF is a trade, not a position transfer. The trade results in a new position or a closeout, but the communication is between a clearing member and the clearinghouse. This statement makes it appear that ELX needs to take steps to make the EFF happen, but that we have not taken necessary steps, something akin to an official expression of disinterest. ELX has no communicative role with the CME in order for an EFF to occur; and

3) The interpretation of Core Principle 18, while an opinion, is not a fact, nor is it Commission doctrine, as CME states. The language of Core Principle 18 does not mirror the Sherman Act, and there is no case law that says that a regulator can't have a pro-competitive standard that creates a separate standard of conduct from the Sherman Act. While conduct that violates the antitrust laws may also violate Core Principle 18, conduct can violate that Core Principle without being in violation of antitrust laws.”

In concluding ELX Futures asked that, “CME be required to post a corrective release to remove these misleading statements and cease chilling the marketplace in its use of the EFF Rule.”

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