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Futures commission merchants, customer funds and capital requirements: An organizational analysis of the futures industry

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  • Emm, Ekaterina E.
  • Gay, Gerald D.
  • Shen, Mo

Abstract

We study futures commission merchants, or “FCMs,” who are the important intermediaries through which institutional, corporate and retail customers conduct trading in interest rate, currency and commodity futures. We construct and examine a data base of FCM financial information including holdings of customer segregated and secured funds intended to support trading on U.S. and foreign futures exchanges over the period 1995–2018. We find significant industry consolidation including a 68% decline in the number of carrying FCMs. We also find significant structural changes including the increased dominance of bank-affiliated and dually-registered, broker-dealer FCMs, with the latter now accounting for 54% of all FCMs and 92% of customer funds held. We discuss regulatory initiatives potentially influencing the consolidation including those resulting from the 2008 financial crisis as well as from the collapse of notable FCMs due to alleged fraudulent activities and misbehavior involving customer funds. Finally, we analyze associated changes in market concentration and competitiveness.

Suggested Citation

  • Emm, Ekaterina E. & Gay, Gerald D. & Shen, Mo, 2020. "Futures commission merchants, customer funds and capital requirements: An organizational analysis of the futures industry," Journal of Commodity Markets, Elsevier, vol. 18(C).
    • Handle: RePEc:eee:jocoma:v:18:y:2020:i:c:s240585131930008x
    DOI: 10.1016/j.jcomm.2019.100093
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    References listed on IDEAS

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    Cited by:

    1. Ekaterina E. Emm & Gerald D. Gay & Han Ma & Honglin Ren, 2022. "Effects of the Covid‐19 pandemic on derivatives markets: Evidence from global futures and options exchanges," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(5), pages 823-851, May.

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    More about this item

    Keywords

    Futures; Derivatives; Futures commission merchant; Segregated funds; Regulation; CFTC;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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