The Commodity Markets Council (CMC), an association uniquely positioned to provide the views of commercial end-users of derivatives exchanges, strongly disagrees with the comments provided by the Department of Justice (DOJ) on futures clearing services. The existing structure has served our commercial needs well by creating the most efficient and liquid futures markets in the world. CMC’s end-user membership is particularly disturbed by the DOJ’s suggestion that vertically-structured exchanges should not be allowed to have integrated clearing facilities. Any attempt to separate the clearing function from the exchanges would cause grave harm to the markets and to the businesses that rely on the markets for effective risk management.
“The DOJ's assertion that futures markets would benefit from a securities style clearing system and cross-exchange fungibility is misguided and ill-informed,” said CMC President Mike Walter. There are fundamental differences between futures and securities markets that do not provide for comparative clearing structures or the offset of positions held on one exchange with positions held on other exchanges.
“In fact, if clearing is delinked from the futures exchanges,” explained Walter, “CMC members and other customers would not be able to effectively use the markets to hedge their commercial risk, liquidity would dry up, the bid/ask spreads would widen, and costs would increase.” The potential costs to the exchange-users, the exchanges, and the trading public of this proposal far outweigh the benefits.
There is no economic or legal rationale for adopting changes to a market structure that works well. “Our Board of Directors met yesterday and unanimously agreed that the government mandates recommended by the DOJ could jeopardize market efficiency and immediately hinder the competitiveness of US futures markets,” said newly-elected CMC Chairman Thomas J. Erickson, vice president government relations, Bunge and former CFTC commissioner.
CMC is a trade association that represents commodity futures exchanges, regional boards of trade, and numerous industry counterparts in the agriculture and energy businesses, including domestic and multinational commodity merchandisers, processors, millers, refiners, commercial and merchant energy companies, precious and base metal trading firms, and bioenergy producers; US and internationally-based futures commission merchants; food and beverage manufacturers; major transportation companies; and financial institutions.
The activities of our members represent the complete spectrum of commercial uses of the agricultural and energy futures markets- from grain and energy hedging by local country grain elevators to highly sophisticated, high-volume hedging activities supporting domestic and international grain and other agricultural product merchandising, exporting, and processing operations. The businesses of all our non-exchange member firms depend upon the efficient and competitive functioning of the risk management products traded on U.S. futures exchanges.