The CME Group, a US-based exchange for financial derivatives, has informed regulators of its intention to provide individual consumers with direct access to the derivatives market.
Typically, retail investors trade derivatives via third-party brokers like TDAmeritrade. Individual consumers would be able to trade derivatives directly through CME rather than through brokerages if regulators approve the CME’s intentions.
The Wall Street Journal reported on Saturday that CME Group had submitted the necessary papers to become a so-called futures commission merchant (FCM).
Participants in the market discussed the recent development. “This is noteworthy and unsurprising. Since I can recall, The CME Group has sought out direct ties with clients, “Christopher Perkins, the president of CoinFund, responded on the Journal’s reporting on the social media platform LinkedIn.
A CME representative added that the firm’s dedication to the FCM model and its significant risk management continue to be of unwavering value to all market participants.
If CME’s application is accepted, Joseph Guinan, CEO of the FCM Advantage futures, also remarked. If CME sets fees lower than those of such brokers, its entry into the futures brokerage market would not only disrupt the game but also cause serious anxiety for all FCMs (Futures Commission Merchants).
The action taken by CME is a turnaround strategy that comes after FTX.US in April proposed a comparable service offering. The idea put up by FTX.US to let users directly trade crypto futures and post margins on its platform is similar to the one used by CME.
The Commodity Futures Trading Commission (CFTC) requested public feedback in May on FTX.US’s request to alter the terms of its derivatives clearing organisation (DCO) licence in order to provide U.S. retail customers with a new kind of crypto margin trading.
The crypto industry and the FIA (Futures Industry Association), a global trade association for the futures, options, and listed derivatives markets, testified in support of FTX.US’s proposal to offer central clearing of margin products directly to retail customers. CME Group and ICE also opposed the proposal. The plan from FTX US was deemed inadequate and presents a serious threat to market stability and participants. U.S. lawmakers were sceptical of the FTX’s plan for an automated collateral system to be utilised for cryptocurrencies and other digital assets in futures markets during a hearing before the House Agricultural Committee in May.
As cryptocurrency prices continue their efforts to rebound from the recent market crisis, trade in cryptocurrency futures on centralised exchanges increased to $3.12 trillion in July, a 13% monthly rise. In May and June, the price of cryptocurrencies fell precipitously as investors fled riskier investments due to concerns about the Federal Reserve raising interest rates and soaring inflation. The futures market accounted for 69% of all cryptocurrency volumes as of July, up from 66% in June, and this helped boost total cryptocurrency volumes on exchanges to $4.51 trillion in July. Since traders feel there is still room for greater gains in the cryptocurrency surge, the amount of futures trading has increased, signalling an increase in speculative activity.
News Summary:
- To regulators, CME Group suggests direct trading in cryptocurrency derivatives
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