The FTX proposal was only approved as unfeasible. CME, the leading futures trading platform, is now considering becoming a broker by itself. Experts: Forced to adopt the FTX model

CME Group (CME) only criticized FTX’s proposal to remove futures brokers in May, but now that CME has submitted documents to register as a broker in August, experts believe that CME Forced to adopt the same solution direction as FTX.

According to Wall Street Journal reported that CME, the leading futures trading platform, submitted its registered futures in August Documentation of Brokers (FCMs). If the application is approved, CME will become the FCM of its own trading platform, and future investors can bypass the current FCM and directly connect to CME for futures trading.

Indeed, if regulatory approval is obtained, CME will have lower operating costs and a more competitive operating model compared to other FCMs, such as Reduce transaction costs for investors. However, this approach is bound to cause protests from other FCMs.

FCM is mainly responsible for clearing futures contract transactions, which is big business on Wall Street. Investors who want to buy or sell futures must provide margin (cash) at FCM. If the price direction is not what investors expect, FCM will require investors to deposit more margin. Once the market price fluctuates greatly, the default of a large trader may cause losses to FCM.

Joseph Guinan, chief executive of Advantage Futures, which has a large FCM business, believes that CME will not directly compete with FCM.

“I don’t think CME will really compete directly with FCM, but if they do, it will completely change the rules of the game for the FCM industry.”< /blockquote>

A spokesperson for the CME said:

“We are confident in the operation of the FCM model Undoubtedly, it provides risk management for all players in the industry.”

Finance professor: CME forced to adopt FCM model

FTX proposed to the US CFTC (Commodity Futures Trading Commission) in March this year, hoping to replace the traditional FCM with a 100% margin algorithmic clearing. This proposal was praised by CFTC Chairman Rostin Behnam, but also It raised questions from Wall Street giants, including CME CEO Terry Duffy and executive director Sean Downey.

At the congressional hearing, CME CEO Terry Duffy believed that the FTX proposal would increase market risk, while Sean Downey said at the CFTC meeting that the existing industry Structures can cope with market fluctuations, while algorithms cannot cope with "surprises".

These claims were also refuted by FTX founder SBF, saying that 24-hour instant liquidation can provide higher risk management and control capabilities.

Craig Pirrong, a professor of finance at the University of Houston, believes that CME's move is a response to the FTX proposal. By establishing its own FCM, it can save transaction costs for investors and establish moat.

“From a philosophical point of view, CME would not want to be an FCM, but in case the CFTC approves the FTX proposal, from a competitive point of view, CMC may would consider operating its own FCM as a last resort.”

As Terry Duffy stated at the hearing, once CFTC approval, based on competitive pressure, CME will Forced to adopt FTX mode.

The CFTC is currently weighing whether to approve FTX's proposal and may make a decision in the next few months.

FTX seems to be actively preparing now. In addition to completing the LedgeX license and obtaining three major CFTC licenses, FTX US Derivatives hired the former CFTC last month Commissioner Jill Sommers joins the board, and current chairman Larry E. Thompson also previously served as vice chairman of the depository trust company DTCC.

In addition to FTX, Coinbase is also warming up, and now Applying for an FCM license.

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