THE SHIFTING SANDS OF FINANCE…
CME INTO FCM!… The move to a new…vertical… structure!
Chicago Mercantile Exchange Photo credit: Matt Griffin, Wikimedia Commons
I am pretty sure that all of you who are reading this, know pretty much who and what the CME, the Chicago Mercantile Exchange… is! Likewise, I am pretty certain that you all know who and what an FCM, a Futures Commission Merchant…is!
After all, you are reading this article published by a company that within its group owns a FCM. The purpose of this article, is to discuss the, for want of a better word, the ‘evolution’, of one Clearing House and Exchange, the CME, into the role of an FCM, a role that has by tradition and design, been kept separate though complimentary…for decades. This evolution has seemingly been brought about by a combination of trends in financial services, technology, regulatory changes and market dynamics.
WHEN DID THE CME APPLY TO BE COME AN FCM? The immediate story, goes back to at least 2022, when the CME applied to become an FCM. This after what is now, the defunct crypto exchange FTX, applied for direct clearing access for its retail clients. Arguably, the story could stretch back to the Great Recession of 2007 – 2009…but I’ll stick to more recent events. Back in 2022, the FIA (the main industry body) raised concerns about how FTX’s vertical integration model posed risks over a number of conflicts of interest including having trading, clearing and market regulation, all under one entity. The regulator, the CFTC, took these on board and stopped FTX’s proposal. However, in October last year the CFTC approved the CME’s proposal to form its own FCM…and that is where we are today.
THE CME’S MOVE TO BECOME AN FCM So…what brought about the CME’s move to become an FCM? Well…there seems to be a number of factors and the first relates to my earlier point about this going all the way back to the Great Recession. The cost and complexity of regulatory changes since then have increased consolidation within FCMs and it could be argued, the CME’s move is an attempt to fill in the gap left over by fewer participants. The problem here is an FCM started by the CME could actually help speed up further consolidation amongst FCMs. The next thing to consider is the development of the CME as a ‘…fintech…’ rather than an exchange or clearing house. The CME has spent huge sums on developing platforms, tools, data analytics and risk management tools helping clients monitor and manage risk, conceivably reducing the clients of FCMs traditional dependence on such tools. Indeed, I’ve heard it said that some exchanges and clearing houses prefer to think of themselves and be called fintech companies, rather than their traditional names. This move has also led to the concept of ‘direct clearing’ really meaning a direct clearing service rather than via a 3rd party FCM, something that might prove attractive to prospective clients of the CME’s new FCM. Finally, there has been a seeming shift within the CME to provide solutions that are more client focussed rather than FCM focussed.
14 | ADMISI - The Ghost In The Machine | Q1 Edition 2025
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