The scale of FCM retrenchment in the US is exaggerated by
commonly cited CFTC figures, research by FOW has found.
Media reports over the past year have pointed to CFTC
figures showing that pre-financial crisis, 190 FCMs were
operational in the US, a figure that has fallen to 70
While the numbers are correct, an analysis of the funds held
by operational FCMs suggests that the number of significant
players that have pulled out of the market is much lower than
the commonly cited figure.
The CFTC publishes monthly reports totalling the funds held
by FCMs on behalf of customers, a clear indication of their
level of activity in the market.
Of the 190 firms at the high watermark of FCM registration
in 2004, only 107 held any funds on behalf of customers. Of
those, only 81 held more than $10m.
Figures for July 2016 reveal that of the 70 firms registered
today, 61 hold funds on behalf of their clients and 56 of those
hold more than $50m in funds in the two categories consistent
with the 2004 figures (Customers’ Seg Required
4d(a)(2) and Customer Amount Pt. 30 Required).
William Mitting, publisher of FOW, said: "While the
headlines suggest that the number of FCMs operational in the
market has dropped by 63%, the number of firms with any
significant client activity has dropped by a lot less: 30% or
"Of these the majority of de-registrations with the CFTC
came from the result of mergers or acquisitions and so
theoretically much of the capacity has been retained.
"However, what our research shows is that there is a clear
barrier to entry into the market and this is likely to grow
without significant changes to proposed regulations and market
"While volumes have grown significantly since 2004, new
entrants into the clearing market have failed to get traction
and the market today is still dominated by the same major banks
that dominated a decade ago.
"This trend has prevailed despite a desire by firms to
establish multiple FCM relationships following the collapse of
MF Global. It is clear that more must be done to enable
competition in the market."
New regulations are causing a strain on the provision of
clearing services to the market.
Basel III leverage rules set to come into effect next year
are forcing FCMs to offload clients with some banks requiring
annual commissions of up to $280,000 to retain OTC clearing
according to ISDA research.
The findings are contained within a whitepaper published
this week, which explores the increased barriers to entry
across the market and looks at how radical reform is needed to
put the industry on a more sustainable path.
to download the free whitepaper.