CME Group Inc. criticized crypto exchange FTX’s plan to cut out the middlemen in the futures markets. Now, the Chicago exchange giant is taking a step in the...
CME Group Inc. criticized crypto exchange FTX’s plan to cut out the middlemen in the futures markets. Now, the Chicago exchange giant is taking a step in the same direction.
In August, CME CME submitted paperwork to register a futures commission merchant, or FCM—essentially, a brokerage that would allow investors to buy and sell futures on CME’s marketplace. If the application is approved and CME gets into the brokerage business, investors could bypass existing brokers and connect to the exchange operator directly for futures trades.
FCMs play a key role in the futures industry. Futures are contracts that allow traders to bet on whether markets such as oil, wheat or the S&P 500 will go up or down. Traders who want to buy or sell futures must post cash collateral, called margin, at an FCM. The FCM puts more cash into the trader’s account if his or her bet pays off, or demands more margin from the trader in the case of a losing bet. A default by a big trader can potentially cause losses for an FCM.
Earlier this year, FTX proposed that traders be allowed to post margin directly to its U.S. bitcoin-futures exchange, without using an FCM. The plan prompted intense debate, with financial heavyweights lobbying both for and against it in Washington. At a congressional hearing in May, CME Chief Executive Terrence Duffy said the FTX plan “would significantly increase market risk,” while Mr. Bankman-Fried defended the proposal as a long-overdue update to the plumbing behind futures markets.
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