CME Group proposes direct trading of crypto derivatives to regulators
CME Group, a US-based financial derivatives exchange, has proposed to regulators its plan to offer derivatives trading directly to retail clients.
According to The Wall Street Journal’s report on Saturday, CME Group filed paperwork to register as a so-called futures commission merchant (FCM).
Retail investors typically trade derivatives through third-party brokers such as TDAmeritrade. If regulators approve CME’s plans, individual consumers will be able to trade derivatives directly through CME rather than through brokerages.
The market players talked about the new development. “This is remarkable and comes as no surprise. CME Group has wanted direct relationships with clients for as long as I can remember,” said CoinFund President Christopher Perkins, who commented on the Journal’s reporting via LinkedIn social media.
Joseph Guinan, CEO of FCM Advantage futures, also commented on whether CME’s application is approved. Its entry into the futures brokerage space will not only be a game changer, but also a dramatic concern for all FCMs (Futures Commission Merchants) if the CME sets fees lower than such brokers.
A CME spokesperson also commented that the company’s commitment to the FCM model and significant risk management remains an unwavering advantage for all industry participants.
CME’s move is a turnaround plan that follows a similar service offering launched by FTX.US in April. CME’s plan is similar to FTX.US’s proposal to allow consumers to post margins and trade crypto derivatives directly on the platform.
In May, the Commodity Futures Trading Commission (CFTC) sought public comment on a request by FTX.US to amend its derivatives clearing organization (DCO) license to offer a new type of crypto margin trading to US retail clients.
CME Group and ICE both opposed FTX.US’ proposal to offer central clearing of margin products directly to retail clients, which was defended by the crypto industry and the Futures Industry Association (FIA) – a global trade organization for futures, options and exchange-traded derivatives markets – in a congressional hearing . FTX US’s proposal was considered to be flawed and poses a significant risk to market stability and market participants.
In a May hearing before the House Agricultural Committee, US lawmakers were skeptical of FTX’s proposal for an automated security system to be used for crypto and other digital assets in futures markets.
Trading of cryptocurrency derivatives on centralized exchanges rose to $3.12 trillion in July, a 13% monthly increase, as crypto prices maintain attempts to recover from the recent market crash. The crypto market plunged in May and June as concerns about interest rate hikes by the Federal Reserve and high inflation caused investors to ditch risky assets.
In July, the derivatives market accounted for 69% of total crypto volume, up from 66% in June, helping to push total crypto volumes on exchanges to $4.51 trillion in July. The increase in derivatives trading volume indicates an increase in speculative activity as traders believe there is room for further upside in the crypto rally.
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