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Brokers Warn CFTC Against Forcing Change To CME's Clearport

Published Wednesday, 22nd September 2010 03:18 am - © 2010 Dow Jones


By Jacob Bunge

Of Dow Jones NEWSWIRES

A group of inter-dealer brokers has urged regulators not to force changes to a clearing service run by futures exchange operator CME Group Inc., which has drawn scrutiny from market authorities.

An ongoing debate in Washington over the functioning of CME's Clearport service, which handles off-exchange transactions in energy and commodity products, could disrupt "vital financial market activity," according to the Wholesale Markets Brokers' Association.

Clearport "has been and continues to be an extremely valuable service in providing transparency, accountability and stability to the global commodity markets," wrote Julian Harding, executive director at the brokerage Tradition and chairman of the WMBAA, in a letter to Gary Gensler, chairman of the Commodity Futures Trading Commission.

The CFTC, CME Group's primary regulator, is struggling to reconcile the operations of Clearport with new rules intended to promote greater transparency and competition in the over-the-counter derivatives market.

CME's Clearport routes privately negotiated swap deals, often arranged by brokers like those represented by the WMBAA, through CME's clearinghouse in a process that lowers counterparty risk for traders.

Many of the hundreds of products Clearport handles are converted to futures contracts in the process. This has raised questions for regulators, who are debating whether the transactions are in compliance with the new derivatives rules.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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