"CME welcomes competitors who share our commitment to a market structure that puts the interest of the investing public first," said Duffy. "There are two important tests that every exchange must meet before it can claim to be operating in the public interest. Its market structure and trading rules must be open and transparent, and there must be equitable treatment of all transactions."
Duffy noted, "CME is concerned about the Eurex U.S. application, which omits any information regarding the exchange's planned means and methods of operations. It is so devoid of real information that it fails to specify the contracts that will be traded. Now that the time pressures of the fast track approval process have been removed, we believe that a critical examination of . . . aspects of Eurex's proposed plan is in order."
Duffy outlined the key areas of concern as follows:
- Payment for order flow and internalization. This will benefit large players at the expense of smaller market users. Duffy expressed concern that even though Eurex's application omitted all information about its actual business, the organization had publicized its plans to capture market share by buying liquidity. According to Duffy, Eurex had marketed a $40 million "survival of the fittest" game to reward fiduciaries who direct their customers' orders to the Eurex platform - without consideration that the customers might be better served by more liquid, efficient and transparent markets. He also noted that Eurex would allow firms to take the opposite side of their own customers' orders without the protections common in the U.S. marketplace.
- Market integrity and cross-border regulatory concerns. Public reports that Eurex has been home to several squeezes involving German debt and its intention to operate an international linkage that would permit trading of the same contract in two jurisdictions with different regulatory requirements raises concerns that abusive trading practices allegedly permitted in Germany could impair the fair operation of the regulated U.S. market. Duffy stated that "such arrangements present significant potential cross-border bankruptcy and other legal risks."
- Unfair competitive practices. Eurex is conducting a publicity campaign alleging that the Chicago exchanges fear competition. Ironically, Eurex pulled out all the stops in an effort to prevent CME from locating a single GLOBEX® trading terminal in its home territory. CME's German lawyers advised CME in writing that Eurex interfered, delaying the placement of the GLOBEX terminal for over a year.
To read the complete copy of the written testimony click here.
Chicago Mercantile Exchange Inc. (www.cme.com) is the largest futures exchange in the United States. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX electronic trading platform. CME offers futures and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moved about $1.5 billion per day in settlement payments in the first half of 2003 and managed $29.6 billion in collateral deposits at Sept. 30, 2003. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (NYSE: CME), which is part of the Russell 1000® Index.
