According to recent reports, CME Group, the world’s largest derivatives exchange, is considering registering as a direct futures commission merchant (FCM). If CME Group is approved as an FCM, the company will be able to bypass third-party brokers and offer futures directly on the CME platform. CME Group can bypass the third party broker and offer futures directly on the CME platform.
Derivatives exchange CME Group registers as an FCM, FTX awaits CFTC approval
CME Group, the world’s largest financial derivatives exchange, has reportedly filed paperwork to become a futures commission merchant (FCM), according to areportpublished by the Wall Street Journal (WSJ).WSJ author Alexander Osipovich explains that CME filed its registration in August, and Osipovich opines that the company is taking its cues “from crypto rival FTX.”
If CME Group’s FCM registration is approved, CME will be able to offer derivatives directly without the need for brokerage firms such as TDAmeritrade, Saxo Bank Interactive Brokers, Robomarkets, Grandcapital The FTX is awaiting CFTC approval to become a derivatives clearinghouse. Last March, the CFTC opened public comment to gain insight into the FTX proposal, and in mid-May, CME Group Chairman and CEO Terry Duffywrote that the FTX move could pose “market risks.”
“The FTX proposal is clearly flawed and poses significant risks to market stability and market participants,” Duffy opined at the time.” The FTX could remove up to $170 billion in loss-absorbing capital from the cleared derivatives market and significantly increase market risk by eliminating standard credit checks and destroying risk management incentives by limiting capital requirements and mutual risk “with a disregard for risk management. We are proposing to implement a clearing system.”
The report, written by Osipovich, details what Joseph Guinan, chairman and chief executive officer of Advantage Futures, says could be a very dramatic move. Guinan remarks, “I don’t see CME going down a path that would put them in direct competition with FCM for customers.” ‘But if they do go down this path, it would be a milestone for the FCM industry and a dramatic concern for all FCMs.’
While the CFTC considers the FTX proposal, Osipovich cited University of Houston finance professor Craig Pirrong, who said the CME’s FCM decision is a response to the FTX proposal, as follows: on September 30, Pirrong said, “From a philosophical From a philosophical standpoint, they would prefer not to do this,” he said. “But if the CFTC approves the FTX model, from a competitive standpoint, they may feel they have to do this.”
Osipovich also included comments from a CME Group spokesperson who commented on CME’s FCM August application.” A CME Group representative stated, “Our commitment to the FCM model and the important risk management benefits it provides to all industry participants remains unwavering. In terms of trading volume for bitcoin (BTC) futures, FTX and CME Group have relatively equal amounts of open interestandinbitcoin futures; the same is true for BTC futures trading volume; and the same is true for BTC futures trading volume
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