FT: Fears over CFTC derivatives rule

01 March 2011

The issue revolves around a rule proposed by the Commodity Futures Trading Commission that 85 per cent of annual trading in a futures contract or swap must occur on an exchange, or what is called a Designated Contract Market.

Leading US exchanges are gravely concerned about proposed rules that could hamper the launch of new derivatives products – a key strategy in the current round of exchange mergers.  Under the rule, if a contract does not meet the 85 per cent threshold on a DCM, it must migrate to another market venue.

Craig Donohue, chief executive of CME, said in the exchanges comment letter: “The 85 per cent requirement will significantly deter the development of new products by existing exchanges like CME Group and likewise deter any new futures exchanges from being established. New futures products often initially build open interest and gain trading momentum in off-exchange transactions, and in many instances, it takes years before trading on the centralised market becomes the predominant mode of trading.”

Full article (FT subscription needed) 

© Financial Times