Less than a week after the Department of Justice issued a letter saying that the "vertical" structure of the U.S. futures industry "may be unnecessarily inhibiting competition," CME Group chief executive Craig Donohue offered a staunch defense of the model in which exchanges such as the Chicago Mercantile Exchange, Chicago Board of Trade (CBOT) and New York Mercantile Exchange (Nymex) clear their own transactions--CME merged with CBOT on Dec. 7 and is in negotiations to buy Nymex. Speaking at a Managed Funds Association conference in Key Biscayne, Fla. on Feb. 12., Donohue questioned the wisdom of trying to fix what isn't broken. Noting the "fundamental conceptual error" that "trading costs in the securities industry were reduced as a result of the divorce between clearing and exchange ownership," he stressed the differences between the derivatives and equities markets. "What better way to ensure that clearing and settlement providers truly serve the public interest," added Donohue, "than by having them be owned by the public?" An excerpt of the speech follows.
There is an ongoing tug of war between futures exchanges and investment banks over ownership and control of central counterparty clearinghouses. This seemingly perennial issue has resurfaced with an ill-timed and ill-considered suggestion that the Department of the Treasury consider whether futures exchanges should give up their clearinghouses and transfer them to a monopoly, government-regulated utility. ...
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