The debate over the role of clearinghouses for the futures
industry raged on last week as one exchange leader called for
common clearing to increase competition in the futures
Sandy Frucher, chairman and CEO of Philadelphia Stock
Exchange (PHLX), told FO Week that he strongly supported common
clearing for the futures industry, such as exists in the US
stock and options markets.
"It's very, very difficult for people to get interest rate
products up because it's structurally difficult if not
impossible," Frucher said. "Part of the issue is that you can't
create new similar products or identical products that have
liquidity in other marketplaces and get out of your trades
anywhere but at the CME [Chicago Mercantile Exchange] or CBoT
[Chicago Board of Trade]."
Frucher said a common clearing system for futures would only
"I feel very strongly about the need for competition,"
Frucher said. "If you can get transparency, fungibility and
deal with the clearing issues I think it'll be a tremendous
boon. But if it locks in the status quo, it'll be
But exchange executives on a panel at the Futures Industry
Association's annual conference in Chicago last week vehemently
defended their marketplace and current vertical exchange
"There's too much of a tendency to oversimplify and equate
cash securities markets with the futures markets," said Craig
Donohue, CEO of CME. "When you're talking about options markets
and securities markets, I think you're talking about domestic
markets. When you're talking about futures, you're talking
about global markets. You can't find an example of a foreign
equity exchange that's trading US listed stocks or options and
offering those to US investors. But with the futures you could
trade Eurodollar futures on Liffe or Treasury futures at Eurex.
So it's a global market."
Donohue added that 70% of the global futures volumes were
cleared on vertically structured clearing houses.
"It's a whole different business paradigm," Donohue added.
"And the fact is, we're going to be competing with European
exchanges and Asian exchanges which have vertically integrated
clearing and settlement systems. So there's no way to have a
North American solution."