In the face of the challenge of Trump's close friend Howard Lutnick competing for the US treasury bond bond futures market, the Chicago Mercantile Exchange (CME), which occupies a dominant position in the industry, is launching an offensive with vigilance.
As a background, BGC Group led by Lutnick announced at the end of September that FMX Futures Exchange, a joint venture with a number of investment banks and market makers, such as JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, Wells Fargo, Citadel Securities, Barclays, etc., was officially launched. In addition to SOFR futures already online for trading, it plans to launch U.S. treasury bond bond futures in the first quarter of 2025.
Cross border clearing of US treasury bond bond futures
As an important part of the trading process, the FMX exchange has chosen to collaborate with the London Clearing House (LCH), a subsidiary of the London Stock Exchange Group, which has also become a focus of attack for competitors.
In the report published on Friday, Terry Duffy, CEO of Chicago Board of Commerce, publicly questioned whether the US government should allow treasury bond bond futures to be liquidated abroad.
Duffy said, "I think it's difficult for him (Lutnik) to transfer the liquidation work to London. I've talked to every official I've talked to, including Treasury Secretary Yellen and other officials - if you think it's okay to do so, I'll accept your response, but at least you have to explain to me why it's okay to do so
According to the data of the Futures Industry Association, in the US $27 trillion treasury bond bond market, Chicago Merchants has occupied an absolute dominant position. According to data from the Futures Industry Association, the Chicago Mercantile Exchange processed over 99% of the US exchange rate futures trading volume in 2023.
But looking at the investment lineup behind the FMX exchange, it is not difficult to understand why Zhishang is so guarded.
In response, BGC Group spokesman said that FMX Exchange has obtained the full approval of the U.S. Commodity Futures Trading Commission (CFTC) to list SOFR and U.S. treasury bond bond futures contracts. The spokesperson also emphasized that the efforts of the Chicago Mercantile Exchange to maintain its monopoly position were based on incorrect premises, and the London Clearing House had already completed registration with the CFTC as early as 2001.
The London Clearing House also issued a statement stating that it has registered directly with the CFTC to clear futures contracts and will hold all futures clients' collateral in the United States. At the same time, the CFTC has signed a memorandum with the Bank of England to supervise and regulate clearing organizations operating across borders between the UK and the US.
For this exchange battle, renowned investment bank and financial services firm Piper Sandler has pointed out that if the US government prevents FMX from using clearing partner LCH, it may ultimately lead to FMX's failure in interest rate futures business.
The 'Lunni scandal' has been brought to the table again
Duffy emphasized that they are completely correct in saying that the London Clearing House is an appropriately regulated exchange. But they did not say that the bigger problem is that the Bank of England monitors the default of US treasury bond bond futures.
Duffy also cited the "London nickel scandal" in 2022 as an example to illustrate how American companies have been affected by exchanges in other regions. He said, "When we saw what happened at LME, we felt very uneasy, and many of my clients were affected by it
In that bearish storm, the price of London nickel soared by 250% in just two days, forcing the exchange to intervene and close the market, and canceling several hours of trading. British regulators have also publicly acknowledged their lack of awareness about this. In the minutes of the Bank of England's Financial Policy Committee meeting, they stated that 'risk assessment has become more difficult due to the relative opacity of the commodity derivatives market'.
As the US presidential election approaches, this matter is becoming increasingly politicized. Democratic Senator Dick Durbin from Illinois publicly wrote a letter to the CFTC warning that overseas settlements could pose risks to the stability of the US sovereign debt market. CFTC Chairman Beham stated last month that he attaches great importance to Senator Durbin's concerns and is working with the Treasury Department to respond.
Of course, when it comes to regulation, we cannot ignore the upcoming US election and potential changes in regulatory personnel.
Trump confidant+transition team leader
For US presidential candidate Trump, Lutnik is the person he trusts the most on Wall Street, so he is now also the co chairman of Trump's transition team. The core role of this team is to help Trump finalize nearly 4000 federal government personnel appointments after he wins the election.
In an interview earlier this month, Lutnik emphasized that potential candidates will only be considered for a role in the future Trump administration if they prove their "loyalty" to Trump and his policies.
It is reported that the team is developing a "list of unwelcome individuals," including officials who protested by resigning during the Capitol Hill assault, those who participated in the conservative agenda "2025 Plan," and others seen as "disloyal to Trump. The large span also reflects the enormous difficulty of forming a "Trump 2.0 government".
For the close relationship between competitors and Trump, Duffy still expressed no concern.
His understanding is: "The last thing the President of the United States needs is to introduce more conflicts. You can't bring those people who are closely related to you in the election into the government and put them in a position that benefits their own business competition. This would be a great disaster