From the December 2013 issue of Futures Magazine • Subscribe!

FCMs speak out

Some of our Top 50 brokers had a lot to say

ADM Investor Services has a limited number of risk adverse high-frequency accounts and our customer’s benefit from the liquidity these traders bring to the futures markets.

10.   Can you share three trends you see now impacting the FCM community? 

 

  1. TK: Increased compliance and regulatory burden. 
  2. Low interest rate environment. 
  3. More than 60% of options trading is now executed electronically instead of by Open Outcry. 

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Pete Nessler, CEO of FCStone Group (2013 ranking: #18)

 1.       What are your thoughts on the Residual Interest debate, ie. the proposal to move from T+1 to just T? Please discuss a) if this is a realistic change, No  and 2) if not, why not? 

PN: The issue with going to a pure T calculation is the FCM has no opportunity to collect the margin funds from the client, this will require pre-funding or capital infusions into the FCM. 

 2.       We've seen a number of Dodd-Frank rules come online over the last year. Have any of these had an impact on your business? If so, which rule(s) and how? How are you dealing with change?

 PN: Yes. (see November 2013 issue for Pete Nessler interview).

 3.       Do you see any contracts with exceptional growth potential? Where is your main growth coming from: domestic or international? Has China/Asia been a factor in your growth plans? 

PN: Coming from domestic customers in more vertically integrated industries. Asia/China overall is a growth market that continues to expand, especially in metals and ags. Continued push in Central and South America.

 4.       Customer confidence continues to get hit with more incidents, such as AlphaMetrix. What actions have you taken to deal with client concerns? 

PN: We have continued to inform and educate our customer base about segregated funds and our investments in segregated funds.  

5.       So far there have been no criminal charges levied two years after MF Global went down. Do you believe the CFTC action is enough?  Do you believe the changes made, ie. Daily capital updates on NFA site, will help earn back customer confidence?

PN: No, do not feel CFTC action is enough. Yes, that daily capital updates are good.

 6.       How is life with fewer (futures)/more (securities options) exchanges? 

PN: Operationally it is easier but it does continue to introduce systemic risk into the business.

 7. How has the futurization of swaps affected your business? Do you see it as a key area of growth?

PN: We see large increases in block trading [already]. Yes, it will be a key area of growth.

8.        Do you believe that high frequency or algo traders have affected the markets? Do they affect your business? If so, how? 

PN: I don’t believe they affect the market for price discovery other than the time they are trading. At the end of the day the fundamentals are a large part of the price discovery. They do not affect our business.

9. Would merging the CFTC and SEC make your life easier, harder? Please explain.

PN:  I believe if the organizations were merged you would see better more effective rule making. 

10.   Can you share three trends you see now impacting the FCM community?

  1. PN: Increased costs to implement regulatory changes
  2. The blocking of the traditional hedger from the markets
  3. Decreasing number of FCMs

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Carl Gilmore, CEO of KCG Futures (2013 ranking: #26)

1.       What are your thoughts on the Residual Interest debate, ie. the proposal to move from T+1 to just T? Please discuss a) if this is a realistic change, No  and 2) if not, why not? 

 CG: First of all, it’s too early to tell how it all ends up working out. One thing I do applaud the CFTC on is taking a risk-based approach. I may not agree with them on what constitutes a risk-based approach, but their taking a risk-based approach in general is a good thing and is a better use of our tax dollars and their limited resources. The real answer, and I hate to say this, is who know how it is going to work out.

At the end of the day, it probably will drive margins higher, and that will mean FCMs will hold more collateral to avoid the effects of residual interest rules.

2.       We've seen a number of Dodd-Frank rules come online over the last year. Have any of these had an impact on your business? If so, which rule(s) and how? How are you dealing with change?

CG: We’re not a big swaps dealer. We’ve talked about swaps, but we’re just waiting to see how it all shakes out first. Dodd-Frank has been somewhat of a headwind for us, but not too difficult. To the extent that reforms are risk-based after the credit crisis, I’m all for that, but my view is the CFTC needs to do that in a well-thought out way.

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