DOJ's About Face On Clearinghouses: What's Up With That?

CNBC.com

Stocks of the NYMEX and other futures exchanges have rebounded from yesterday's steep slide after the Department of Justice's bombshell letter questioning the competitiveness of the exchanges "clearing" functions.

The department is calling for an end to futures exchanges owning or controlling the business of "clearing," in which a third party takes the other side and guarantees the trade.

NMX shares sank 18 percent Wednesday to an all-time low yesterday, but the stock is up over 10 percent today. CME also plunged 18 percent and is now up 11 percent.

There was no direct mention of the pending CME/NYMEX merger, but the stocks took a huge hit with a potential anti-trust battle looming with federal regulators and the inevitable union of the two is no longer a foregone conclusion.

It's not the plunge in the stock prices that has some current and former traders in the futures pits so miffed. As my colleague Rick Santelli--who started as a trader on the floor of the Chicago Mercantile Exchange nearly 30 years ago--points out: "At a time when there's a crisis in confidence in the markets as it pertains to risk, (the Department of Justice) is shaking up one area where customers have some certainty of the markets working in an effective fashion."

Rick notes customers used to pay $50 to $70 to clear contracts when he started in the business, now their costs are a mere fraction of that. He believes, like many traders, clearing houses owned by the exchanges have helped lower these costs and helped mitigate risks.

It seems the DOJ also believed this a year ago since it had no problems with the Chicago Merc and CBOT merging to form the CME. Now, they're questioning the entire competitiveness of the futures exchanges' clearing operations.

What's changed?

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