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District Court Rules CBOT and CME Not Guilty of Anticompetitive Conduct

bzwirb's picture
Commentary by Bob Zwirb

A U.S. District Court ruled in favor of the Board of Trade of the City of Chicago, Inc. ("CBOT") and Chicago Mercantile Exchange, Inc. ("CME") (collectively, the "Defendants") from allegations that they conspired to stop the CFTC from approving the application of a competing exchange.

In a case before the U.S. District Court for the Northern District of Illinois Eastern Division, the U.S. Futures Exchange, LLC ("USFE") and U.S. Exchange Holdings, Inc. (collectively, the "Plaintiffs") alleged that the Defendants engaged in anticompetitive conduct. According to the Plaintiffs, who at the time were subsidiaries of the German exchange Eurex Frankfurt A.G. ("Eurex"), the Defendants conspired to purposefully delay the CFTC's hearing on USFE's application.

The Judge determined, however, that the Defendants' conduct with respect to the Plaintiff's application was largely immunized from antitrust liability, that an exception to such immunity for actions that are "objectively baseless" did not apply based on the evidence, and that other alleged misconduct involving the Defendants' fee policies and clearing links did not violate the antitrust laws.


This case focuses on Eurex's attempt to enter into the U.S. Treasury futures market, a market that is dominated by the CBOT and considered to be one of its "crown jewels."  It was generally believed that for Eurex's plan to enter the market to succeed, timely approval of its application for designation as a contract market was required.  The application ended up getting bogged down at the CFTC and it was not able to launch by its planned date.  While the CBOT/CME may have contributed to prolonging this process, the issue is whether such efforts give rise to antitrust liability. 

Incumbent firms, as the court observes, have no duty to aid potential competitors and may not misuse the legal or regulatory process to prevent entry. See, e.g., Steven C. Salop and David T. Scheffman, Raising Rivals’ Costs:  Recent Advances in the Theory of Industrial Structure, 73 Am. Econ. Rev. 267 (1983) ("Conduct that unreasonably excludes competitors from the market place is a concern of antitrust law.").  That still leaves a fair amount of room for incumbents to make entry into their market by new competitors more difficult.  

Here the case centers upon allegations that the CBOT used its influence in Washington to delay and obstruct the regulatory approval process for Eurex’s application as a contract market.  The court found that the CBOT/CME’s efforts to influence the CFTC were largely shielded by the Noerr-Pennington doctrine, which "extends absolute immunity under the antitrust laws to businesses and other associations when they join together to petition legislative bodies, administrative agencies, or courts for action that may have anticompetitive effects."  The case nevertheless illustrates how the regulatory and political process may potentially serve as a barrier to entry. 

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