CME Group to Face off With FTX After Filing for Futures Commission Merchant Status – CME Group, the largest exchange for financial derivatives in the world, has reportedly filed paperwork to become a futures commission merchant (FCM), according to a Wall Street Journal report. Alexander Osipovich of the WSJ explains that CME filed the registration in August and that the company is “taking cue from the crypto rival FTX.”
If CME Group’s FCM registration is approved, CME will be able to offer derivatives directly, bypassing brokerage firms such as TDAmeritrade, Saxo Bank Interactive Brokers, Robomarkets, as well as Grandcapital. FTX is awaiting CFTC approval to become a clearing organization for derivatives. The CFTC solicited public feedback on FTX’s proposal last March, in order to gain insight. Terry Duffy, chairman and chief executive officer of CME Group, wrote in mid-May that FTX’s action could pose a “market risk.”
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Duffy opined at the time, “FTX’s proposal is glaringly deficient and poses a significant risk to market stability and market participants.” “FTX proposes implementing a ‘risk management light’ clearing regime that would significantly increase market risks by 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.”
Joseph Guinan, chairman and chief executive officer of Advantage Futures, is cited in Osipovich’s report as stating that the move could be quite dramatic. “I would not expect the CME to go down the path where they compete directly with FCMs for clients,” Guinan remarked. “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 Craig Pirrong, a finance professor at the University of Houston, when he stated that CME’s FCM decision was a response to the FTX proposed plan. “From a philosophical perspective, they would prefer not to do this,” Pirrong said on September 30. “But in the event that the CFTC does approve the FTX model, from a competitive perspective, they may feel that they have to do this.”
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Osipovich also published commentary from a CME Group spokesperson regarding CME’s August filing with the FCM. The CME Group representative stated, “Our commitment to the FCM model and the significant risk management benefits it provides to all industry participants remains unwavering.” FTX and CME Group have relatively the same volume of bitcoin (BTC) futures open interest and BTC futures trade volume.
