CME Group Takes Step Into Clearing Business With New FCM Unit

The Chicago Mercantile Exchange (CME) Group has secured regulatory approval to establish its own futures commission merchant (FCM), marking a significant shift in strategy for the world's largest derivatives exchange.

The National Futures Association (NFA) granted the approval today, enabling CME Group to directly handle customer trades and clearing services, functions traditionally performed by third-party FCMs such as major investment banks.

Terry Duffy, Chairman and Chief Executive Officer of CME Group, said: "We are pleased that the NFA has approved our FCM application. We remain committed to the FCM model and believe in the time-tested risk management benefits it continues to provide. 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 comes amid broader changes in the futures industry, where traditional FCM numbers have declined by approximately 60% since 2005 due to increased regulatory requirements and market consolidation. This development positions CME Group to potentially capture additional revenue streams whilst maintaining closer relationships with end-users of its markets.

CME Group operates the world's largest derivatives marketplace, offering trading in futures and options across major asset classes including interest rates, equity indices, foreign exchange, energy, agricultural products, and metals. The exchange processes most of its transactions through its electronic CME Globex platform, alongside fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.

The group's clearing house, CME Clearing, already acts as a central counterparty for all trades executed on its exchanges. The addition of FCM services could streamline the trading and clearing process for certain market participants.

The announcement has sparked debate within the futures industry. Some market participants argue that CME's dual role as both exchange operator and FCM could create conflicts of interest, whilst others suggest it's a natural evolution for the exchange. Several FCMs have privately expressed concerns about competing directly with their primary venue provider.

The Futures Industry Association (FIA) President and CEO Walt Lukken made the following statement on the FIA website regarding the approval of CME’s futures commission merchant (FCM) license:
 

“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. 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 organization controls multiple market functions – trading, clearing, intermediation and market regulation. FIA urges the CFTC to move forward immediately on a rulemaking to address this matter.” 

What do you think about CME Group's move into the FCM space? Share your views in the comments section below.