The scale of FCM retrenchment in the US is exaggerated by commonly cited CFTC figures, research by FOW has found.
Media reports over the past year have pointed to CFTC figures showing that pre-financial crisis, 190 FCMs were operational in the US, a figure that has fallen to 70 today.
While the numbers are correct, an analysis of the funds held by operational FCMs suggests that the number of significant players that have pulled out of the market is much lower than the commonly cited figure.
The CFTC publishes monthly reports totalling the funds held by FCMs on behalf of customers, a clear indication of their level of activity in the market.
Of the 190 firms at the high watermark of FCM registration in 2004, only 107 held any funds on behalf of customers. Of those, only 81 held more than $10m.
Figures for July 2016 reveal that of the 70 firms registered today, 61 hold funds on behalf of their clients and 56 of those hold more than $50m in funds in the two categories consistent with the 2004 figures (Customers’ Seg Required 4d(a)(2) and Customer Amount Pt. 30 Required).
William Mitting, publisher of FOW, said: “While the headlines suggest that the number of FCMs operational in the market has dropped by 63%, the number of firms with any significant client activity has dropped by a lot less: 30% or 22 firms.
“Of these the majority of de-registrations with the CFTC came from the result of mergers or acquisitions and so theoretically much of the capacity has been retained.
“However, what our research shows is that there is a clear barrier to entry into the market and this is likely to grow without significant changes to proposed regulations and market structure.
“While volumes have grown significantly since 2004, new entrants into the clearing market have failed to get traction and the market today is still dominated by the same major banks that dominated a decade ago.
“This trend has prevailed despite a desire by firms to establish multiple FCM relationships following the collapse of MF Global. It is clear that more must be done to enable competition in the market.”
New regulations are causing a strain on the provision of clearing services to the market.
Basel III leverage rules set to come into effect next year are forcing FCMs to offload clients with some banks requiring annual commissions of up to $280,000 to retain OTC clearing clients, according to ISDA research.
The findings are contained within a whitepaper published this week, which explores the increased barriers to entry across the market and looks at how radical reform is needed to put the industry on a more sustainable path.