Top 30 Brokers: Mean, lean and ready for what comes next

December 19, 2015 09:00 AM


FCMs have had to incorporate a slew of new rules, which has harmed their bottom lines.

“Incorporating new regulations and absorbing the significant accompanying costs has, to some extent, become the new normal,” says Gerry Corcoran, Chairman and CEO of RJ O’Brien. “This has been an ongoing and time-consuming process, with each regulation bringing unique challenges and learning curves, but none of these have been insurmountable.”

Scott Gordon, chairman and CEO Rosenthal Collins Group, says they devote significant resources to stay ahead of regulatory and compliance developments. “Among the biggest recent challenges for the industry and for us has been the new residual interest rules that went into effect in November 2014,” Gordon says. 

“Regulation is now part of our day-to-day reality,” noted Alain Courbebaisse, Head of Prime Clearing Services for SG Americas. “We’ve had to revisit our perception of customer profitability. This has triggered a different pricing strategy for newly on-boarded business and the review of historical ones.”

Increased regulations have been a long time in the making so brokers had time to prepare and some of the new capital rules have affected the large bank FCMs more than the independents. “A lot of it we had already been doing piecemeal,” says Carl Gilmore co-head of futures at Wedbush Futures. “It forced us to reorganize our compliance programs, our risk management programs and our operational risk programs. Being a mid-tier firm there is a cost but it has not been cost-prohibitive.” 

Sredni says it has been manageable for TradeStation. “Since we don’t do any prop trading or much outside of an agency broker, the impact has been relatively insignificant. When it comes to risk we have been spending money on that but not Dodd-Frank.”

Peterffy says, “Most of our time was spent putting together the owner and control reporting. The CFTC wants more personal information about futures accounts. We created more information for our customers and we had to put together more reports.” 

He adds that the largest expense is in people, both in added compliance staff and work hours spent on non-income producing products. 

While the post-Dodd-Frank, post-MF Global series of regulations is near complete, the specter of additional compliance issues related to current spoofing charges looms.

While there is nothing new about spoofing, market participants are being looked at more closely. 

Gilmore says the recent focus on spoofing could be positive or negative for the industry depending on whether it increases clarity. “If it makes people think the market is more transparent and fair it is a good thing,” he says. “The primary problem is that it is so complicated and so complex that it is hard to be objective. It becomes very subjective as to what is 
OK and not OK. You have these ratio guys who put in a number of orders in anticipation of only being filled on part of those. That, according to the CME, is OK but a guy puts in a 1,000-lot with the intent of getting 20, you can make the argument that there is no intent of the 980 to get filled. I don’t know why that is any different. It is so complicated that it is hard to have an objective standard.” 

Peterffy points out an irony in the current regulatory structure. A lot of new rules centered on collecting customer information, and now the largest worry surrounds cyberattacks and having to protect the information they are now required to collect. “You get more information and now you have to protect it,” laughs Peterffy. 

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About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.