Derivatives marketplace CME Group has received approval from the National Futures Association (NFA) to establish a futures commission merchant (FCM).
Walt Lukken, FIA
The NFA defines a FCM as an entity that solicits or accepts orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps, and accepts money or other assets from customers to support such orders.
In response to CME Group receiving approval, Walt Lukken, president and chief executive at FIA, labelled the development as an “example of a trend that raises serious concerns about market regulation and systemic risk”.
He added that the approval comes at a time when the CFTC has yet to propose a strong rule to address conflicts among affiliated CFTC-regulated entities.
“Nearly three years ago, FTX sought CFTC approval for a vertically integrated business model. FIA warned the CFTC at that time that such a novel structure would raise concerns about conflicts of interest from combining multiple market functions under one roof. Three years later, these risks remain unaddressed.”
At the time, the collapse of FTX sparked concerns around the regulatory oversight of digital assets exchanges and their linked trading and custody subsidiaries.
Read more: Wild West in action: FTX’s fall from grace
“We strongly believe inherent conflicts of interest exist when one organisation controls multiple market functions – trading, clearing, intermediation and market regulation. FIA urges the CFTC to move forward immediately on a rulemaking to address this matter,” added Lukken.
When contacted by The TRADE in response to FIA comments, CME Group stated that it has nothing else to add to its initial statement.
Terry Duffy, chairman and chief executive at CME Group, noted that the firm is pleased that the NFA has approved its FCM application, adding: “We remain committed to the FCM model and believe in the time-tested risk management benefits it continues to provide.
“At the same time, as our industry continues to evolve, our FCM will ensure CME Group is in a strong position to quickly adapt to our clients’ changing business needs.”