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Dodd Frank, Basel II, Basel III, MIiFID II, and other regulations are all putting capital pressure on large global banks who are the backbone of the futures markets. These regulatory shifts are opening the door for exchanges and clearinghouses to evolve business models, and leverage their capabilities into new service offerings.
One impact of the regulatory overhaul has been a challenging business environment for futures commission merchants (FCMs), and as a result the population of FCMs has decreased dramatically. According to TABB Group, the decline is creating an environment where concentration risk is becoming a bigger concern and jumpstarting clearing market structure changes which potentially could reshape the listed derivatives clearing landscape.
In TABB’s latest research, “Clearing House Calculus: Membership Approaching Disintermediation,” report author Tom Lehrkinder reviews the industry trends paving the way for the evolution of the clearing landscape. According to Lehrkinder, mounting regulations alongside the focus on capital usage is causing the FCMs to re-evaluate their business model and client profitability.
“Regulatory initiatives and capital constraints have caused many FCMs to take a back seat to for-profit exchanges who are increasingly expanding their activities to encompass a greater range of market participants and are now setting the stage to compete directly with global FCMs,” said Lehrkinder. “FCMs are currently still integral to the execution and clearing process, but their ownership of the clearing side of the equation may be slipping away.”
The report is now available for download by TABB derivative clients, as well as pre-qualified media at https://research.tabbgroup.com/search/grid. For more information or to purchase the report, contact info@tabbgroup.com.
