By Ann Saphir
CHICAGO, Feb 23 (Reuters) - A public feud between Wall-Street-backed ELX Futures LP and CME Group Inc over a trading rule that could boost ELX's market share is obscuring a little-noted fact: the upstart exchange is gaining traction anyway.
ELX let loose the latest salvo in the dispute with CME on Tuesday, releasing a Feb. 22 letter to the Commodity Futures Trading Commission (CFTC) that accuses its bigger rival of misleading regulators about its so-called exchange of futures for futures (EFF) rule in order to stifle competition.
At issue is a block-trade mechanism offered by ELX that allows traders to easily move their U.S. Treasury futures contract positions from one marketplace to another. CME says ELX's EFF violates CME's rules, and both companies have petitioned the CFTC to decide the issue.
ELX's letter 'does put pressure on the CFTC to resolve that,' Futures Industry Association President John Damgard said.
CME shares today fell 3.7 percent to $276.57.
A favorable CFTC ruling on EFF would be a game changer, ELX Chairman Tom Rubio said in an interview.
'If we get it, it just catapults us,' he said. Overall market share, now at about 3.0 percent, could triple in a matter of weeks, he said.
But even without the EFF rule, ELX has managed to win a foothold, with market share in two-year Treasury futures topping 6.0 percent last month, its figures show.
At least three previous efforts by other startups doing battle in Treasury futures failed to gain appreciable market share from CME's Chicago Board of Trade, which has offered the contracts for decades.
ELX Chief Executive Neal Wolkoff points to another measure of success: liquidity.
'The market has sufficient size now that you can enter and exit without hurting yourself, without what's called slippage,' Wolkoff said in a separate interview. That's key for hedge funds and banks, which worry that at a smaller exchange they might move the market just by putting in their orders.
Both executives acknowledge there's still far to go. This month, ELX's two-year Treasury futures market share dipped to 4.7 percent because of a quarterly changeover in contract maturities that favors the incumbent, ELX officials said.
ELX has also struggled to win business in the longer-dated Treasury contracts, winning just 1.4 percent of trading in 10-year futures, CME's most active Treasury contract.
The ongoing feud over the EFF rule illustrates the difficulties of challenging an incumbent in the futures industry, where established exchanges have an edge because futures contracts offered at different exchanges aren't interchangeable, even if they are identical.
The practice stands in stark contrast to that in the stock and stock-options trading world, where customers can buy a security at one exchange and sell it on another.
ELX's EFF mechanism would make it possible for traders to move positions sitting at CME's clearinghouse to ELX's clearinghouse.
Last week CME Executive Chairman Terry Duffy said he believes the U.S. government understands the importance of barring interchangeability in futures markets.
CME has asked the CFTC to let stand CME's bar against the EFF rule.
'CME Group is attempting to frustrate competition with no justification other than pursuing an anti-competitive agenda,' ELX attorney Kenneth Raisler said in the Feb. 22 letter to the CFTC's acting director of oversight, Richard Shilts.
A CME spokesman said the exchange continues to work through the issue with the CFTC, and didn't comment on ELX's market share.
ELX Futures -- backed by Goldman Sachs Group Inc JPMorgan Chase and other big financial firms -- was launched last July.
(Editing by Leslie Adler) Keywords: USA EXCHANGES/ELX (ann.saphir@thomsonreuters.com; +1-312-408-8592; Reuters Messaging: ann.saphir.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
CHICAGO, Feb 23 (Reuters) - A public feud between Wall-Street-backed ELX Futures LP and CME Group Inc over a trading rule that could boost ELX's market share is obscuring a little-noted fact: the upstart exchange is gaining traction anyway.
ELX let loose the latest salvo in the dispute with CME on Tuesday, releasing a Feb. 22 letter to the Commodity Futures Trading Commission (CFTC) that accuses its bigger rival of misleading regulators about its so-called exchange of futures for futures (EFF) rule in order to stifle competition.
At issue is a block-trade mechanism offered by ELX that allows traders to easily move their U.S. Treasury futures contract positions from one marketplace to another. CME says ELX's EFF violates CME's rules, and both companies have petitioned the CFTC to decide the issue.
ELX's letter 'does put pressure on the CFTC to resolve that,' Futures Industry Association President John Damgard said.
CME shares today fell 3.7 percent to $276.57.
A favorable CFTC ruling on EFF would be a game changer, ELX Chairman Tom Rubio said in an interview.
'If we get it, it just catapults us,' he said. Overall market share, now at about 3.0 percent, could triple in a matter of weeks, he said.
But even without the EFF rule, ELX has managed to win a foothold, with market share in two-year Treasury futures topping 6.0 percent last month, its figures show.
At least three previous efforts by other startups doing battle in Treasury futures failed to gain appreciable market share from CME's Chicago Board of Trade, which has offered the contracts for decades.
ELX Chief Executive Neal Wolkoff points to another measure of success: liquidity.
'The market has sufficient size now that you can enter and exit without hurting yourself, without what's called slippage,' Wolkoff said in a separate interview. That's key for hedge funds and banks, which worry that at a smaller exchange they might move the market just by putting in their orders.
Both executives acknowledge there's still far to go. This month, ELX's two-year Treasury futures market share dipped to 4.7 percent because of a quarterly changeover in contract maturities that favors the incumbent, ELX officials said.
ELX has also struggled to win business in the longer-dated Treasury contracts, winning just 1.4 percent of trading in 10-year futures, CME's most active Treasury contract.
The ongoing feud over the EFF rule illustrates the difficulties of challenging an incumbent in the futures industry, where established exchanges have an edge because futures contracts offered at different exchanges aren't interchangeable, even if they are identical.
The practice stands in stark contrast to that in the stock and stock-options trading world, where customers can buy a security at one exchange and sell it on another.
ELX's EFF mechanism would make it possible for traders to move positions sitting at CME's clearinghouse to ELX's clearinghouse.
Last week CME Executive Chairman Terry Duffy said he believes the U.S. government understands the importance of barring interchangeability in futures markets.
CME has asked the CFTC to let stand CME's bar against the EFF rule.
'CME Group is attempting to frustrate competition with no justification other than pursuing an anti-competitive agenda,' ELX attorney Kenneth Raisler said in the Feb. 22 letter to the CFTC's acting director of oversight, Richard Shilts.
A CME spokesman said the exchange continues to work through the issue with the CFTC, and didn't comment on ELX's market share.
ELX Futures -- backed by Goldman Sachs Group Inc JPMorgan Chase and other big financial firms -- was launched last July.
(Editing by Leslie Adler) Keywords: USA EXCHANGES/ELX (ann.saphir@thomsonreuters.com; +1-312-408-8592; Reuters Messaging: ann.saphir.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.