In accordance with the Wall Street Journal (WSJ) report, CME Group has allegedly registered to become a futures commission merchant (FCM).
WSJ contributor Alexander Osipovich reported that CME acquired the registration in August and is drawing cues from the crypto competitor FTX.
If the FCM registration for CME Group is authorized, CME would no longer require brokerage firms such as Grandcapital, Robomarkets, Saxo Bank Interactive Brokers, and TDAmeritrade in order to offer derivatives.
As for FTX, the firm is currently waiting for official clearance from the CFTC to finally become a derivatives clearing company.
The CFTC asked for public comments in March 2021 so that it could learn more about FTX’s proposal. CME Group chair and CEO Terry Duffy wrote in a mid-May article that the move by FTX could bring market risk.
FTX’s proposal is glaringly deficient and poses [a] significant risk to market stability and market participants.
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.
Terry Duffy
According to Osipovich’s report, Joseph Guinan, the chairman and chief executive of Advantage Futures, believes the change might be very drastic. Guinan said, “I would not expect the CME to go down the path where they compete directly with FCMs for clients. 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.”
Osipovich cited the University of Houston’s finance professor Craig Pirrong, when he claimed that CME’s FCM move was in response to the FTX plan while the CFTC weighs in on the FTX proposal.
Pirrong stated on September 30 that they would rather avoid doing this — from a philosophical standpoint. However, he added that they might feel compelled to do this from a competitive standpoint if the CFTC greenlights the FTX model.
