For most of last year, Buck Haworth was telling anyone he could about how CME Group altered his firm’s designation, which effectively ratcheted up his data fees at the end of 2012, and he warned others that they could face the same issue. The problem, he told us back in June, wasn’t so much that they’d raised his fees, but how they did it — first with a multiyear examination into his business practices, and then citing incomprehensible passages in its rules. So, it came as no surprise to him when the exchange boosted its data fees across the board just after Thanksgiving 2013 — and that it did so with a confusing set of rules that industry heavyweight Les Rosenthal derided as a “five-page fee matrix accompanied by three pages of footnotes” (see “Confusion reigns,” below).
Indeed, Rosenthal — a two-time past chairman of the Chicago Board of Trade and co-founder of Rosenthal Collins Group — questioned “CME Group’s actions in implementing these new market data fees without dialogue with market participants” — an act he said was “insensitive, at best, and disingenuous at worst.”
Opinions on the increase may depend on your perspective. End-users don’t like it. From a shareholder perspective, the fee increase is perfectly rational. It is the kind of “growth” the Exchange has been achieving since it shifted from being a nonprofit club working to build markets to being a for-profit service provider.
Ironically, the fee increase came shortly after the CME vigorously defended its end-users against potentially disastrous increases in compliance costs from a new Commodity Futures Trading Commission (CFTC) rule interpretation on residual interest and the on-again/off-again battle over a derivatives transaction tax.
While Haworth was sounding the alarm, the cash-strapped CFTC was expending valuable resources to pursue technical violations from years ago, adding costly compliance rules, re-interpreting its residual interest rule that could possibly double end-user margin requirements and carrying on a costly court battle to defend its position limits rule.
It was, in short, a good year for CME shareholders and a chaotic year for the CFTC — but ultimately a disastrous year for end-users, who seem to be heading into 2014 with the odds stacked against them (see “For profit, for whom?,” here).
London metal mischief
CME Group is hardly the only exchange to be accused of putting shareholders ahead of users, and the accusations don’t stop with fees. In fact, even before the CME imposed its data fees in late 2013, breweries and other aluminum users in the United States were complaining that the London Metal Exchange (LME) maintained rules that extended wait times at warehouses to ratchet up profits for shareholders like Goldman Sachs, which had purchased one of the largest aluminum warehouses in North America.
In a July piece called “A shuffle of aluminum, but to banks, pure gold,” the New York Times explained how a “a merry-go-round of metal” was costing U.S. consumers billions of dollars per year as trucks needlessly shuffled chunks of aluminum between LME warehouses to comply with rules imposed by Goldman Sachs .
Both Goldman and the LME denied any collusion, and the practices finally are being phased out — but only after billions were skimmed from the system. Now Goldman is seeking to unload the warehouse.