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23 August 2016

Hedgeweek: Direct clearing in futures trading is reshaping role of FCMs

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Exchanges are recognising the changing futures commission merchant (FCM) landscape and are willing to look to new and innovative ways to serve their client base, according to a report by TABB Group.

Tom Lehrkinder, author of Clearing House Calculus II: Exchanges Expand the Boundaries of Self Clearing, explains futures clearing has reached an inflection point that has forced exchanges and clearing houses to take notice.

“For the CME to even consider a new membership category speaks volumes to how the marketplace is changing and reacting to the regulatory influences of today,” says Lehrkinder. “Although the now intertwined relationship between exchanges, FCMs and end users has made a dramatic shift in clearing structure, exchanges and clearinghouses still need the security blanket of the FCM to provide stability and financial backing.”

According to the research there are a number of benefits to this new market structure, most notably that direct access may lead to reduced processing and settlement risk in futures markets as clearing houses assume a direct role in clearing futures transactions.

Taking into consideration the challenging environment facing the FCM industry, TABB concludes it may only be a matter of time before DFPs are on level footing with sell-side market participants as the margining and settlement side of the business further evolves.

Full article

© Hedgeweek

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