US Derivatives Market Reforms Will Benefit the Largest Futures Commission Merchants, Says New TABB Research

Nearly 90% of Large FCMs are Investing in Projects to Support Changing Industry; 65% See Rising Futures Volumes in 2013

NEW YORK & LONDON--(BUSINESS WIRE)--A structural shift in the futures commission merchant business model is underway, says TABB Group in new research, “US FCM Business 2012: The Listed Part of the Equation.”

“US Futures Market: State of the Industry 2012”

The competitive landscape for futures commission merchants (FCMs) is changing to a new model in which investment and interest rate income are no longer the keys to profitability, this at a time when FCMs are facing rising operating costs in a significantly weaker revenue environment. But according to Matt Simon, a TABB senior analyst and author of the new report, as well as “US Futures Market: State of the Industry 2012” published in October, there is good news: the new landscape will favor larger FCMs that provide investors with cutting-edge execution technology, efficient ways to manage and deploy capital and improved customer service.

Operating costs are rising, says Simon, due to more regulatory mandates resulting from Dodd-Frank and CFTC rule changes. “Each time a new rule is enacted, the costs to ensure compliance rise, which is why nearly 90% of the large FCMs say they’re working on improvement projects, internally and in customer-facing parts of their businesses, to compete.” Although revenues for FCMs in the listed US futures business declined 42% in the past five years, 65% of FCMs expect to see an increase in US futures volumes in 2013.

TABB interviewed 15 FCMs based in the U.S. during September and October 2012. According to the CFTC, these firms represented $108 billion in client segregated funds, accounting for 70% of the total $155.1 billion in total segregated funds held by US FCMs in September 2012. The report focuses on the cumulative impact of declining volumes and commission wallets; challenges of running an FCM business; the influence of regulatory change; impact of FCM failures; IT and staffing budgets; views on managing and oversight of customer funds; and expected winners and losers across the US FCM market landscape.

There is a downside to the constantly shifting regulatory environment, Simon points out. “TABB expects at least a dozen FCMs, 10%-15% of the total number, to exit the business by the end of 2013 as economics change and competition builds. In order to succeed, FCMs will need to focus on execution and execution-related services as these will be the areas where they will be able to differentiate themselves from their competition.”

The Executive Summary for this 26-page report with 19 exhibits is available online at TABB. TABB Group Research Alliance Derivatives clients and qualified media can download the report now at www.tabbgroup.com. For more information or to order the report, write to [e-mail].

About TABB Group

With offices in New York, London and expansion to Asia-Pacific, TABB Group is the only financial markets research firm focused solely on capital markets, based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb. For more information, visit www.tabbgroup.com. In January 2010, TABB launched TabbFORUM, the online global capital markets community covering analyses of current issues, tracked daily by more than 13,000 professionals.