A funny thing happened recently in the name of “competition”. ELX Futures, founded in late 2007 by some of Wall Street’s biggest firms, effectively sat down and wrote the equivalent of the following resolution:

RESOLVED, that effective immediately, the Johnson family shall have full and unfettered access to their neighbour’s swimming pool.

And, without the consent of, or even consultation with, that neighbour.

In reality, ELX adopted a “rule” that purports to allow US Treasury futures created on the Chicago Board of Trade simply to be transferred to ELX through a non-competitive “exchange of futures for futures”.

The CBOT has said “no”.

At this point I must declare: I have a dog in this race, if not several. My law firm acts for CME Group, now owner of the CBOT, including on this matter.

Moreover, back in the ’70s I was outside counsel to the CBOT when it designed and developed the world’s very first futures contracts on interest rates, including US Treasury futures. In scores of meetings with the Federal Reserve, Treasury Department, Comptroller of the Currency, Federal Deposit Insurance Corporation, major state banking agencies, and banking legislators on Capitol Hill, I helped assure them of the efficacy of this product.

And I contributed language to the Congress during that time to ensure that the Commodity Futures Trading Commission would act as sole regulator, even though the futures would often involve debt securities that the Securities and Exchange Commission viewed as its birthright.

I also participated in the successful defense of that legislation over challenges by the SEC. I have a plaque in my office from the CBOT noting my “critical role” in that process. More importantly, of course, it was fun.

Gimme, gimme, gimme

So, how does ELX explain its desire to use the CBOT’s swimming pool (sorry, market liquidity) without permission or compensation?

If that characterisation seems harsh, consider that, in January 2010, the CBOT traded 33 times more Treasury futures than ELX.

The new exchange argues that this commandeering of the CBOT’s property, invented and nurtured by the latter for 30 years, is necessary for it to “compete”.

But what is really happening is quite different.

First, we have a national constitution that prohibits our government from taking our property for a public use unless we receive just compensation for that loss.

If ELX were to prevail upon the federal authorities to force the CBOT to help ELX drain away its own business, that prohibition might apply.

Even then, what public use is conceivably served by tilting the competitive playing field in this manner? And where is the just compensation?

Second, the public policy advocated by ELX implies a legal system that would forgive the poor for robbing banks, the sick for depriving the healthy of medical services, and the hungry for looting supermarkets.

No underdogs here

Third, ELX’s sponsors are major market participants. One might wonder why they want to own and control their own exchange when, by their own assessment, the CBOT has a more liquid market to meet their Treasury futures needs.

Note that ELX is not proposing that brokers must go to the market that has best execution – as the SEC mandates for all customer orders and as even the National Futures Association requires for security futures – because the CBOT would then be the required destination in nearly all cases for both acquiring and disposing of Treasury futures.

While there are occasions when helping the little guy break through to success may be laudable, the ELX’s founders are among the largest and most successful commercial and investment banks on this planet.

These organisations have the resources, talent and stamina to sustain a long and potentially successful campaign to build up their own interest rate futures trading venue. Why then do they need to raid the CBOT or enlist government coercion?

Perhaps just because the hard ball approach is cheaper and quicker, if it works. It should not.

The author is a former chairman of the CFTC and now heads the exchange-traded derivatives regulatory practice at Skadden, Arps, Slate, Meagher & Flom in Washington.