A recent report revealed that CME Group, which is the largest derivatives exchange in the world, has applied for the status of Futures Commission Merchant (FCM).
The decision of CME Group comes after FTX, a crypto exchange, also applied for becoming a derivatives clearing organization and is now awaiting the response of the Commodity Futures Trading Commission (CFTC).
If CME Group gets approval for FCM status, then it will be able to use its platform for directly offering future and bypass third-party brokers altogether.
FCM
It was the Wall Street Journal that first reported that the CME Group was interested in getting the status of a futures commission merchant (FCM).
According to the report, the application had been filed by the financial derivatives exchange back in August and it is following in the footsteps of the digital asset exchange, FTX.
Approval for FCM registration would mean that CME Group can eliminate the need for brokerage houses, such as Saxo Bank Interactive Brokers, TDAmeritrade, Grandcapital, and Robomarkets.
Meanwhile, crypto exchange FTX is also waiting for approval from the CFTC for becoming a derivatives clearing organization.
The FTX proposal
In order to get insight into the proposal made by FTX, the CFTC decided to ask for public comments last March.
The chief executive and chair of the CME Group, Terry Duffy, had said in May that FTX’s move could lead to ‘market risk’.
Duffy had said that the proposal from the crypto exchange is deficient and could be a risk to market participants and market stability.
He said that the clearing regime that FTX has proposed is a ‘risk management light’ that would increase the market risks significantly and would wipe out loss-absorbing capital of about $170 billion from the cleared derivatives market.
He asserted that they would destroy risk management incentives and eliminate standard credit checks by limiting mutualized risk and capital requirements.
Experts weigh in
The report quoted several experts on the topic, some of whom believe that this could be a very dramatic move.
They said that the CME Group may not directly compete with all FCMs, but if they do decide to do so, then it would be a complete game-changer for the entire industry and be a big concern for all FCMs.
While the CFTC is still contemplating the FTX proposal, some experts said that CME had also decided to pursue the FCM license because of the crypto exchange.
It is possible that the CME Group may not have wanted to do so, but had decided to go ahead with it in the event that FTX’s proposal receives approval from the CFTC.
A spokesperson for the CME Group commented on the FCM filing of the company in August. He said that they were committed to the FCM model and wanted to offer all industry participants risk management benefits.
When it comes to the volume of bitcoin futures, the CME Group and FTX have relatively the same amount of BTC futures trade volume and bitcoin futures open interest.