After criticizing cryptocurrency exchange FTX for its plans to cut out the middlemen in the futures markets, CME Group Inc. CME was proposing to do the same.
What Happened: In August, CME filed paperwork to register as a futures commission merchant, inherently becoming a brokerage for investors to buy and sell futures on CME’s marketplace directly, per the Wall Street Journal.
If passed, this would allow investors to bypass the middlemen brokers such as Interactive Brokers Group, Inc. IBKR and futures brokerage NinjaTrader.
CME’s new strategy follows FTX’s plan to become a brokerage for futures trades. CME Group CEO Terrence Duffy said in a May hearing on Capitol Hill, “The FTX model would significantly increase market risk.”
FTX which is led by billionaire Sam Bankman-Fried is awaiting approval from the Commodity Futures Trading Commission, as FTX proposed to the U.S. Congress earlier this year that investors should be given access to posting their margins directly to its U.S. Bitcoin BTC/USD futures exchange.
Why It Matters: By becoming a futures commission merchant (FCM), CME’s investors will save more money on fees when trading futures contracts, but it will most likely cause more backlash from its competitors, as they will be cut out of the process.
As FCMs earn revenue from fees and interest on their customers’ cash balances, this new revenue stream could unlock a great opportunity for CME Group as the Federal Reserve is raising interest rates and the demand for futures contracts is soaring.
Jin Chang, CME Group managing director and global head of metals, said: “We are pleased with the incremental strides we have made in growing our global Aluminum Futures, with an average daily volume of approximately 3,700 contracts so far in September and open interest of approximately 1,000 contracts.”
One can speculate that CME’s move was in response to FTX’s proposal to the Commodity Futures Trading Commission, as Craig Pirrong, a University of Houston finance professor, added CME is setting up a new framework for regulations surrounding brokerages and future exchanges, reported by the Wall Street Journal.
The Last Word: In January, Coinbase Global Inc COIN purchased crypto-futures exchange FairX, which was launched last year and sells futures products and is regulated by the U.S. Commodity Futures Trading Commission.
Photo: Marco Verch From Flickr