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 CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term-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.