CME Group received approval to establish a futures
commission merchant (FCM). While the group welcomed this step as a strategic
move to adapt to client needs, the approval has drawn concerns from industry
leaders over potential regulatory risks.
The Financial Industry Association (FIA) warned that
the license could heighten systemic risks by concentrating multiple market
functions under one organization.
The approval from the National Futures Association
(NFA) allows CME Group to strengthen its position in the derivatives
marketplace. However, FIA President and CEO Walt Lukken has raised concerns
about conflicts of interest, especially given the growing trend of firms like
CME consolidating multiple market roles.
FIA Raises Concerns
“The approval of CME’s FCM application is the
latest and most significant example of a trend that raises serious concerns
about market regulation and systemic risk,” Lukken said. “The approval comes at a time when the Commodity Futures Trading Commission (CFTC) has
yet to propose a strong rule to address conflicts among affiliated
CFTC-regulated entities.”
FIA’s reaction is based on concerns about the risks
posed by vertically integrated business models in the financial sector. He
emphasized the need for the CFTC to
establish rules that address conflicts of interest within CFTC-regulated
entities.
Lukken also pointed out that nearly three years ago, the
FIA raised similar concerns when FTX sought CFTC approval for a similar business structure. According to Lukken, the risks from blending trading, clearing, and market regulation under one roof have not been fully addressed.
“Nearly three years ago, FTX sought CFTC approval
for a vertically integrated business model. FIA warned the CFTC at that time
that such a novel structure would raise concerns about conflicts of interest
from combining multiple market functions under one roof. Three years later,
these risks remain unaddressed,” he said.
Multiple Market Activities
The growing influence of organizations like CME Group
over multiple aspects of market activity, trading, clearing, and intermediation
raises questions about the potential for conflicts of interest, as well as the
broader impact on financial markets.
“We strongly believe inherent conflicts of
interest exist when one organization controls multiple market functions, trading, clearing, intermediation, and market regulation. FIA urges the CFTC to
move forward immediately on a rulemaking to address this matter,” Lukken added.
This article was written by Jared Kirui at www.financemagnates.com.
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