COMMENT or-9 

ELX Bech'anic 

Liquidifv 

Exchange ® 

Neal L Wolkoff 

Chief Executive Officer 

ELX Futures L.P. 

T. 212 294 8056 II 0 East 59th Street 

F. 212 294 8058 New York. NY 10022 

nwolkoff@elxfutures.com 

Via eRulemaking Portal 

January 5, 2009 

Gabrielle A. Sudik, Special Counsel 

Division of Market Oversight 

Commodity Futures Trading Commission 

Three Lafayette Center 

i.' 

1155 2151 Street, N.W. ;-.\ 

Washington, D.C. 20581 

Re: Proposed Rules on Block Trading and EFP and EFS Transactions, 73 

FR 54097, September 18,2008 

Dear Special Counsel Sudik, 

.·· 

ELX Futures, L.P. ("Electronic Liquidity Exchange" or "ELX") was formed in 

December, 2007 by eight dealers, three trading firms, and a major electronic and voice 

broker and technology provider, and is now in the process of applying for designation :._ 

with the Commodity Futures Trading Commission ("CFTC") as a Board of Trade and ~-:'1 

Contract Market for exchange trading in, among other products, U.S. Treasury Futures·_::~ 

Contracts. Once it is approved, ELX will be a fully electronic exchange, and will not ~ 

support a trading floor. 

ELX submits these comments with respect to the Commission's above-referenced 

proposed rules concerning Block Trading and EFP and EFS transactions. With the 

exceptions noted below, ELX supports the proposed rules and commends the 

Commission for proposing rules which are sensitive to a variety of market needs and 

circumstances, and which give the contract markets latitude in fashioning rules that meet 

the needs of their marketplaces and individual circumstances. 

ELX supports integrating the requirements of large market participants within the 

structure of the centralized market facility. Bright line, one size fits all rule sets only 

serve to disenfranchise the largest users of the regulated markets and incent them to move 

their business off-exchange or off-shore. Clearly, if we are worried about liquidity, 

driving business off-exchange harms market liquidity and price transparency more than 

any other outcome. Given that they are promptly price reported, block transactions that 

take place on an exchange provide price discovery by the marketplace for large trades 

that otherwise would be unseen if they were executed off-exchange. Retaining for the 

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regulated exchange the open interest that results from block trades can benefit exchange 

markets by providing potential liquidity inasmuch as positions that are established by 

block trades may well be modified or rolled forward or offset by on-exchange trades later 

on in a type of "secondary market effect." This secondary market effect can enhance 

liquidity overall notwithstanding that the initial block trade was not executed openly on 

the exchange. 

The exchange is in the best position to determine the appropriate minimum size for block 

trades because of its intimate knowledge of its own marketplace. The exchange can best 

judge how block trading impacts liquidity given its understanding of the secondary effect 

of later liquidity from the open interest created by the block. The necessary balancing of 

factors in determining minimum block size requires judgment and expertise, and is not 

best accomplished by a formulaic test, as the proposed rules recognize. The threshold for 

block trading rules should be in the hands of the contract market that is responsible for. 

the oversight of the marketplace. 

When ELX becomes a live enterprise, we intend to bring an added measure of 

competition to the futures exchange space, which should insure that decisions on block 

size will be made and reconsidered in light of market competition between exchanges, 

and not on a hypothetical basis. We think this makes for a healthy backdrop by which the 

Commission's philosophy will play out, and we look forward to reacting to the 

Commission's proposed rule set in a competitive environment. 

Regarding the proposals on block trading among affiliates, ELX questions the provision 

that seeks to prohibit affiliate trades if executed by a single trader as inconsistent with the 

structure of the proposal which looks to have oversight programs tailored to specific 

situations rather than to bright line blanket prohibitions. We believe that this provision 

needs to be reconsidered. 

Regarding EFP and EFS transitory trades, this has been an area of limited clarity for 

some time. It would be helpful at the least if the proposal explicitly stated that 

mechanisms including and like the NYMEX ClearportTM platform, which converts cash 

trades to futures positions or offsets via transitory EFP and EFS transactions, would still 

be protected under the proposed approach. 

Please do not hesitate to contact me with any questions. 

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