According to a recent report, the world’s largest derivatives exchange CME Group is looking to register as a direct futures commission merchant (FCM). CME Group’s decision follows the digital currency exchange FTX, as the crypto company applied to become a derivative clearing organization and awaits approval from the U.S. Commodity Futures Trading Commission (CFTC). CME Group will be able to offer futures through the CME platform directly if it is granted approval as an FCM.
Derivatives Exchange CME Group Registers FCM, While FTX Is Waiting for CFTC approval
The world’s largest financial derivatives exchange, CME Group, has reportedly filed paperwork to become a futures commission merchant (FCM), according to a report published by the Wall Street Journal (WSJ). WSJ author Alexander Osipovich explained CME filed the registration in August and Osipovich opines that the company is “taking cue from [the] crypto rival FTX.”
If CME Group’s FCM registration is approved, CME will be able to offer derivatives directly without the need for brokerage houses like TDAmeritrade, Saxo Bank Interactive Brokers, Robomarkets, and Grandcapital. FTX awaits approval by the CFTC in order to be a derivatives clearing organisation. Last March, the CFTC opened public comments so it could get insight into FTX’s proposal. In mid-May, CME Group chair and chief executive officer Terry Duffy wrote that the move by FTX could present “market risk.”
“FTX’s proposal is glaringly deficient and poses [a] significant risk to market stability and market participants,” Duffy opined at the time. “FTX proposes to implement a ‘risk management light’ clearing regime that would significantly increase market risks by potentially removing up to $170 billion of loss-absorbing capital from the cleared derivatives market, eliminating standard credit checks, and destroying risk management incentives by limiting capital requirements and mutualized risk.”
Osipovich’s report reveals that Joseph Guinan (chairman and chief executive at Advantage Futures) believes the move may be quite dramatic. “I would not expect the CME to go down the path where they compete directly with FCMs for clients,” Guinan remarked. “However, if they did go down this path, that would be a game-changer for the FCM industry and a dramatic concern for every FCM.”
While the CFTC weighs in on the FTX proposal, Osipovich cited Craig Pirrong, a finance professor at the University of Houston when he said that CME’s FCM decision was a response to the FTX plan. “From a philosophical perspective, they would prefer not to do this,” Pirrong said on September 30. “But in the event that the CFTC does approve the FTX model, from a competitive perspective, they may feel that they have to do this.”
Osipovich also published commentary from a CME Group spokesperson who commented on CME’s FCM August filing. “Our commitment to the FCM model and the significant risk management benefits it provides to all industry participants remains unwavering,” the CME Group representative said. CME Group and FTX have roughly the same bitcoin futures volumes and open interest in bitcoin (BTC).
How do you feel about CME Group submitting a request for FTX futures commission merchant status. Please comment below to let us know your thoughts on this topic.
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