UPDATE 2-CFTC rejects CME's latest argument in futures feud

* CME says CFTC has not required it to accept EFF trades

* Growing battle with upstart ELX in Treasury futures
(Recasts, adds CME share price, analyst comment)

By Ann Saphir

CHICAGO, Jan 26 (Reuters) - U.S. regulators rejected as
"unpersuasive" CME Group Inc's (CME.O) decision to bar traders
from moving their Treasury futures positions to upstart
exchange ELX Futures by using a block-trade mechanism offered
by ELX.

Shares of the world's largest derivatives exchange operator
skidded 6.8 percent on Tuesday even as it defended its stance.
CME said the Commodity Futures Trading Commission had not moved
to require it to accept so-called exchange of futures for
futures (EFF) trades from ELX or its members.

The CFTC has made a formal request to CME to defend its
policy further, and the CME is expected to do so in coming
weeks.

"Antitrust laws do not require us to take action to enable
new entrants to take advantage of our substantial investments
in innovation and marketing," CME Group said in a statement. It
added it was confident the CFTC will agree after "full
consideration."

The CFTC's Jan. 22 letter, which was made public on
Tuesday, helped send shares of CME down $20.79 to $286.20,
their lowest closing price since September.

ELX Futures LP -- backed by Goldman Sachs Group Inc (GS.N),
JPMorgan Chase & Co (JPM.N), Bank of America (BAC.N) and other
Wall Street firms -- has been trying to win a foothold in the
lucrative market for Treasury futures trading since launching
last July.

The upstart has had trouble gaining traction because
traders are wary of using a market without an established pool
of liquidity. Treasury futures trading at CME accounts for more
than 95 percent of trading in the contracts worldwide.

Last year, in an effort to address liquidity concerns, ELX
won CFTC approval of a mechanism that could enable traders to
easily transfer trading positions between ELX and the much
larger CME, which runs the Chicago Board of Trade.

CME fought back, saying that such a mechanism violated its
rules. ELX appealed to the CFTC to clarify its stance, and last
week the regulator did so in a letter addressed to CME's
general counsel that called CME's arguments "unpersuasive."

ELX CEO Neal Wolkoff said the letter supports his
exchange's position. "Any further effort by the CME to thwart
the EFF Rule will carry with it an unbearable weight of
anti-competitive intent," Wolkoff said in a statement.

The next move appears to be up to CME, Sandler O'Neill
analyst Richard Repetto wrote in a note to clients.

"In our view, this means that CFTC is not taking action.
Instead, it is asking CME to provide more reasons justifying
why it has rules blocking EFF trades," Repetto wrote.

"We expect the exchange of letters between CME and CFTC to
continue."
(Reporting by Ann Saphir, editing by Matthew Lewis)