We are moving into a post-history world for the futures commission merchant (FCM). The credit crisis, which threw the economy and the industry into turmoil, is now more than seven years old. Even though many of the additional regulatory and compliance costs that came as a result of the crisis are just now taking effect, the industry is more resigned to them. Many FCMs see the resultant restructuring and consolidation as a net positive and they say it’s time to stop complaining and move on to whatever comes next. 

There are many headwinds for brokers, but complaining does not build business and those that have survived are interested in creating the efficiencies needed to thrive in the new regulatory landscape. 

At the recent Futures Industry Association Expo event in Chicago, the topic of the shrinking FCM industry was brought up often. Seven years ago there were more than 150 registered FCMs listed by the Commodity Futures Trading Commission (CFTC). As of August 2015 there were 69 listed--59 if you only counted those holding segregated customer assets (see “FCM attrition,” below). But many of the survivors have put a positive spin on it. They see a bit of Darwinism at work and say the industry is more secure because the remaining FCMs are stronger and less likely to present a contagion risk to the rest of the industry. 

Interactive Brokers Chairman and CEO Thomas Peterffy says 150 was probably too many. “As a thriving member of that community, it is good what they have done,” Peterffy says. “[It makes] sure that people are properly capitalized, properly staffed; ultimately it did raise the cost of doing business and made it prohibitive to some folks. While that is surely negative to a small entrant or new entrant, for those of us that are properly capitalized it is a positive.” 

Salomon Sredni, president and CEO of TradeStation Group, agrees. “I used to get frustrated when I saw some of our competitors offering ways for their clients to take risks when it was not necessarily in the customers’ best interest,” Sredni says. “Extending margin without offering customers tools to better manage risk doesn’t necessarily help customers in the long run.”  

Others agree that it’s not a bad thing. “Negative events caused several FCMs to go by the wayside; those that took aggressive business risks did not commit to compliance, committed fraud or did not understand how to price their product,” says Tom Kadlec, president of ADM Investor Services. He adds, most retail customers will benefit from a more stable, risk averse and compliant FCM.

Sredni adds, “You have to be strong and resolute in your purpose and message to customers. For us, that means we invest in differentiating technology that provide valuable decision-support tools to our customers.” 

This is not to say everyone likes all the additional regulations.