Justice urges look at clearing business

WASHINGTON (Reuters) - The U.S. Justice Department has urged a hard look at the lucrative "clearing" business of futures exchanges, said Thomas Barnett, the department's assistant attorney general for antitrust, at the Reuters Regulation Summit in Washington on Wednesday.

Shares of CME Group Inc CME.N and NYMEX Holdings Inc (NMX.N: Quote, Profile, Research, Stock Buzz) fell sharply on Wednesday on the Justice Department concerns, which first came out in a letter that was made public on Tuesday. CME shares closed down nearly 17.6 percent at $485.25 and NYMEX shares fell 17.6 percent to $87.88.

A clearing house administers trades and ensures buyers and sellers meet their obligations.

"The basic issue is control of the clearing function for trades on an exchange," said Barnett. "The question is whether the exchanges themselves should own the clearing function operations or whether they should be separated or regulated in a particular way."

Barnett said on Wednesday that creating a common clearing function would reduce barriers to a new entrant to the market.

But, he cautioned: "We didn't actually take a bottom line position on what the ultimate outcome ought to be."

In the letter to the Treasury Department, which was dated January 31 and released on Tuesday, the Justice Department said it believed "that certain regulatory policies governing financial futures may have inhibited competition among financial futures exchanges, potentially discouraging innovation and perpetuating high prices for exchange services."

The Justice Department approved the merger of the Chicago Mercantile Exchange and Chicago Board of Trade to create CME Group Inc CME.N last year.

Chicago-based CME Group, parent of the world's largest derivatives exchange, said last week that it was in talks to buy NYMEX Holdings, parent of the New York Mercantile Exchange, for $11 billion. If that happens, the Justice Department would likely also look at that merger.  Continued...