CME gets approval to operate futures commission merchant, sparking strong opposition from industry participants

CME Group Inc. has been approved to operate its own futures commission merchant (FCM), a move that has been criticized by some market participants. CME issued a statement on Tuesday saying it has received approval from the National Futures Association to form an FCM. Although it said it remains "committed" to the FCM model, changes are still possible. The model is responsible for accepting orders to buy and sell futures contracts, futures options, and the funds required to complete customer orders. CEO Terry Duffy said: "As our industry continues to evolve, our FCM will ensure that CME Group can quickly adapt to the changing business needs of our customers." CME decided to file for FCM in 2022 in response to the vertical integration model that has emerged in the cryptocurrency market. FTX had sought approval to clear crypto derivatives trades without intermediaries such as FCMs, and then withdrew its application after the collapse. Last year, Duffy said in an interview that if there were rules around FTX and other similar proposals "could be another way to eliminate market friction." CME's decision to apply for its own FCM is a defensive strategy. "It's because I don't know what the world is going to look like and I don't want to be left behind," he said in October 2023. Some large industry players have expressed concerns about CME's FCM application being approved. The Futures Industry Association said in a statement on Tuesday that it was "the latest and most significant example of a trend that raises serious concerns about market regulation and systemic risk." Its CEO Walt Lukken said: "We firmly believe that when one organization controls multiple market functions (trading, clearing, intermediation and market regulation), there are inherent conflicts of interest." A representative for CME declined to comment. (Bloomberg)