It seemed to me that the futures commission merchant (FCM) population was shrinking. Many names I was familiar with from the trading floors in Chicago were gone: Alaron, Cadent, SMW, Tennco, to name a few. It was my initial thought that heavy regulation and a zero interest rate environment had driven many FCMs out of the industry. To put my theory to the test, I went back to the Commodity Futures Trading Commission’s (CFTC) FCM financial data for October 2008, the beginning of the financial crisis. There were 142 FCMs back then, but that number was inflated by Forex firms that did no futures business.
Retail forex was permitted to be conducted by banks, insurance companies and broker dealers or FCMs. The easiest route was for a forex dealer to register as an FCM and take in no customer segregated funds and conduct no futures business. With a net capital requirement of only $500,000 these Forex firms were able to conduct business with almost no regulation. If you strip out the 69 FCM/Forex dealers that were registered in October 2008 you are left with 73 futures FCMs.
Looking at the May 2014 CFTC list, there are 88 FCMs, but that list includes a few remaining forex dealers and a number of newly registered swap dealers. Most of the Forex dealers closed or moved offshore when their capital requirement was raised to $20,000,000. The May 2014 list contains 19 FCMs that reported no segregated funds. The remaining 69 firms can be considered futures FCMs. A decline of four firms from the 73 that existed in October 2008, is not a significant decline over the last 5 ½ years.
Many FCMs have changed names or reorganized. Quite a few are gone but new FCMs have taken their place. The following is an unofficial list of the departed (Several of these firms are still in business but are no longer resgistered FCMs):
- Bear Stearns
- Country Hedging
- MF Global
- Open eCry