CBOT Urges Congress To Carefully Consider Eurex Application

Testifying before the U.S. House Agricultural Committee today, the Chicago Board of Trade's Chairman Charles Carey strongly urged the U.S. Congress and the Commodity Futures Trading Commission (CFTC) to fully and carefully review the application of Eurex U.S. to become a registered futures exchange in the United States next year. The CBOT® cited concerns about the incompleteness of the Eurex application and the lack of transparency in both its business model and its filing with the CFTC. Carey urged Congress and regulators not to consider the Eurex application until it is complete.

Carey pointed out to the committee that Eurex has requested confidential treatment of nine of the twenty sections of its application, thereby avoiding public scrutiny. "The Eurex application conceals more than it reveals. Any company seeking a federal license to trade U.S. Treasuries, among other products, should tell the American people the full story about how it is going to conduct its business."

Carey also raised concerns about the potential lack of transparency in the Eurex model, most notably in its "call-around" market. This practice allows brokers to trade away from a centralized marketplace and to quote "opaque prices" to customers, who thus are denied the best available price. "This system has great potential for conflicts of interest that give preferred customers favored pricing and disadvantage average customers in the market," Carey said.

In addition, Carey pointed out that the current application raises more questions than it answers.

The following are a few questions that raise concerns:

• How can Eurex comply with U.S. law if some market surveillance functions are to be performed by unregistered German entities?
• What clearing arrangements or clearing system will Eurex actually use? How much of the trading in the United States will be cleared in Germany?
• Is Eurex using its power as the only German derivatives exchange to buy market volume?
• What meaningful precautions will Eurex have in place to ensure market transparency?
• How and when will Eurex submit its contracts for U.S. Treasury Security futures to the CFTC, Department of Treasury and Federal Reserve Board for review as required by law?
• How will Eurex deal with a market emergency caused by trading in U.S. markets by foreign firms or governments, including its own?

"I believe that these are reasonable questions and concerns," said Carey. "Our interest at the CBOT is two-fold; we advocate open and transparent markets that protect customers, and we believe in a level playing field."

To read a complete copy of Chairman Carey's testimony click here.