Antitrust Division Recommends Review of Regulations for Futures Exchanges

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Department of Justice Antitrust Division filed comments with the U.S. Department of the Treasury on January 31, recommending that the Treasury Department conduct a careful review to determine whether the current regulatory structure for interest rate futures transactions could be improved to make entry by new exchanges easier. The Antitrust Division contended that certain regulatory policies governing financial futures might have inhibited competition among financial futures exchanges.

The Justice Department suggested that a change in the regulatory regime that eliminates exchange control exercised by futures exchanges over the clearing function could facilitate the emergence of greater competition between exchanges in the development and trading of financial futures contracts.

Under the current regulatory regime, an exchange controls where a financial futures contract is cleared (“open interest”) and whether the clearinghouse may treat contracts as fungible or eligible for margin offset (“margin offsets”). This control has made it difficult for exchanges to enter and compete in the trading of financial futures contracts, according to the Antitrust Division. Equity and options exchanges do not control open interest, fungibility, or margin offsets in the clearing process, it was noted.

The Justice Department comments in response to the Treasury Department's request for comments on the Regulatory Structure Associated with Financial Institutions, appears at: http://www.usdoj.gov/atr/public/comments/229911.htm.

Commodity Futures Trading Commission

“As the regulator of the futures markets, the CFTC is confident that the U.S. futures exchanges and clearinghouses are functioning well, especially during these turbulent economic times,” Walter Lukken, Acting Chairman of the Commodity Futures Trading Commission (CFTC), said in a February 8 statement, responding to the Antitrust Division's comments.

“The CFTC continues to examine the industry's clearing structure as part of our broader mission,” he added. “While recent Department of Justice comments on clearing deserve thoughtful analysis, we believe that the various clearing models that have developed in the U.S. meet the standards established by the Commodity Exchange Act.”