FIA Expresses “Concern” Over CME FCM Approval

CME Group has received approval from the US National Futures Association to establish a futures commission merchant (FCM), a move that has prompted concern from the Futures Industry Association (FIA).

As an FCM, CME will be able to solicit orders to trade futures and execute client orders, moving it into the clearing space. CME originally applied for the authority in 2022, a move widely seen as a defensive one give how ill-fated cryptocurrency exchange FTX had applied to the US authorities for just such a licence.

“We remain committed to the FCM model and believe in the time-tested risk management benefits it continues to provide,” says Terry Duffy, chair and CEO of CME. “At the same time, as our industry continues to evolve, our FCM will ensure CME Group is in a strong position to quickly adapt to our clients’ changing business needs.”

The move provoked consternation in some quarters with one FCM telling The Full FX they were concerned about potential conflicts of interest. “We need to see how CME conducts itself if it finds itself in competition with an existing FCM,” the source observes. “Our concern is that this move drives fees lower and puts a squeeze on existing FCM providers.”

This view was echoed by FIA president Walt Lukken, who says in a statement, “The approval of CME’s FCM application is the latest and most significant example of a trend that raises serious concerns about market regulation and systemic risk. The approval comes at a time when the CFTC has yet to propose a strong rule to address conflicts among affiliated CFTC-regulated entities.

“Nearly three years ago, FTX sought CFTC approval for a vertically integrated business model,” he continues. “FIA warned the CFTC at that time that such a novel structure would raise concerns about conflicts of interest from combining multiple market functions under one roof. Three years later, these risks remain unaddressed.

“We strongly believe inherent conflicts of interest exist when one organisation controls multiple market functions – trading, clearing, intermediation and market regulation,“ Lukken adds. “FIA urges the CFTC to move forward immediately on a rulemaking to address this matter.”