The comment letter addressed the following issues, among others:
- There are a number of special factors that must be considered when an applicant for contract market designation is operated or owned by the operator of a foreign board of trade or other foreign entity, including, among other things:
- Conflicting national interests
- Limited extra-territorial jurisdiction of the CFTC
- Difficulties in connection with responding to market emergencies
- Financial integrity risks
- Insider trading issues
- The CFTC should consider whether "fair competition" policies would be furthered by granting Eurex U.S.'s application, since state regulatory authorities in Germany would be unlikely to permit a U.S. exchange to open a similar subsidiary exchange in Germany which would offer the same products as an established German exchange.
- The Eurex U.S. application is materially incomplete and it has failed to show how Eurex U.S. would meet many of the standards mandated by Congress for U.S. designated contract markets in areas including, among others, avoidance of conflicts of interest, prevention of market manipulation, market surveillance, trade practice surveillance, financial surveillance, and customer protection.
- Eurex U.S.'s proposal to provide up to 95% performance bond reductions on spreads between U.S. Treasury futures and German government debt futures would create serious financial risks for its clearing organization and its clearing members.
- Eurex U.S.'s proposed clearing link between its U.S. clearing organization and its parent's European clearing house raises a number of issues such as the following:
- The European clearing house is not registered with the CFTC
- The proposed clearing link may present a number of financial risk factors to Eurex U.S.'s customers
- The proposed clearing link would present opportunities for money laundering
- Although Eurex U.S. has proposed to outsource its market surveillance and trade practice surveillance functions to the National Futures Association, there are serious questions with regard to whether NFA has the necessary jurisdiction or the resources to effectively perform these functions.
- Transparency is the foundation of U.S. futures and futures options markets. However, it is likely that, like Eurex Deutschland, Eurex U.S. will primarily rely upon a "call-around" market model, with respect to futures options, that reduces transparency and encourages internalization and payment for order flow.
- Eurex U.S.'s proposal to reward its "Top Ten" brokers and traders with projected rebates of up to $40 million will encourage payment for order flow and an erosion of customer protection.
