Government Filings
ELX to SEC: new rules unfairly benefit NYSE
Thu, Dec 16 08:34 AM EST

*Proposed rule makes NYSE's clearer a 'monopolist'-ELX

*NYSE's clearing venture would help it compete against CME

*Some ELX owners support NYSE's clearing venture

By Ann Saphir

CHICAGO, Dec 16 (Reuters) - ELX Futures LP told regulators late Wednesday that a proposed rule would give NYSE Euronext's U.S. futures exchange an unfair advantage against ELX in competing against CME Group Inc, and should be rejected.

ELX Futures, whose own attempt to challenge CME Group (CME.O)'s dominance in the lucrative market for Treasury futures trading has met with limited success, said that the proposed rule will enshrine NYSE Euronext NYX.N's co-owned New York Portfolio Clearing as a "monopolist."

The rule would enable NYPC, a joint venture between NYSE and the Depository Trust and Clearing Corp., to cut traders' costs by allowing them to effectively clear Treasury securities and futures at a single clearinghouse, reducing in many cases the money they must put up to back their trades.

NYSE plans to begin competing in Treasury futures next year through its U.S. futures exchange, NYSE Liffe U.S. The contracts would be cleared through NYPC, which would offer savings on margins through an exclusive "one-pot margining" arrangement with a DTCC unit that clears Treasury securities. Neither ELX or CME have a similar deal.

"The proposed arrangement effectively -- and improperly -- advantages NYSE Liffe over other futures exchanges," ELX lawyer Richard Marshall said in the letter. "Permitting NYSE Liffe to offer one pot margining through its clearing agent of choice when ELX cannot threatens to deprive investors of one of the few alternatives to CME--ELX."

Since its July 2009 launch, ELX has captured just 2 percent to 3 percent of the overall market in Treasury futures, which was created by CME Group's Chicago Board of Trade. The contracts are one of CME's biggest revenue sources, with interest-rate contracts - including short-term rate futures that ELX also offers -- generating $2.5 million in fees each day in the third quarter.

ELX's latest letter is part of a broader campaign to delay or derail NYSE Liffe's start altogether. Earlier this month ELX asked the Commodities Futures Trading Commission to reject NYPC's application to become a clearinghouse, saying its clearinghouse's arrangement with DTCC undermines competition.

Even as ELX rails against NYPC, some of the start-up's founding members are pushing for its approval.

Goldman Sachs, Getco, Morgan Stanley, and UBS, all listed as "founding partners" on ELX's website, wrote letters of support for the NYPC's CFTC application, saying the new clearer would enhance competition.

All four have a minority stake in NYSE Liffe. None of ELX's other major partners wrote similar letters. (Reporting by Ann Saphir; Editing by Theodore d'Afflisio)

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