Futures Commission Merchants, Customer Funds and Capital Requirements: An Organizational Analysis of the Futures Industry

52 Pages Posted: 28 May 2019

See all articles by Ekaterina E. Emm

Ekaterina E. Emm

Seattle University, Department of Finance

Gerald D. Gay

Georgia State University - Department of Finance

Mo Shen

Auburn University - Department of Finance

Date Written: January 29, 2019

Abstract

We study futures commission merchants, or “FCMs,” who are the important intermediaries through which institutional, corporate and retail customers conduct trading in interest rate, currency and commodity futures. We construct and examine a data base of FCM financial information including holdings of customer segregated and secured funds intended to support trading on U.S. and foreign futures exchanges over the period 1995−2018. We find significant industry consolidation as well as structural changes including the increased dominance of FCMs who are bank-affiliated or are dually-registered as broker-dealers. We also examine how these changes have been influenced by regulatory initiatives including those resulting from the 2008 financial crisis as well as by the collapse of notable FCMs due to alleged fraudulent activities and misbehavior involving customer funds. Finally, we investigate the effect of these changes on market concentration and competitiveness.

Keywords: Futures, derivatives, futures commission merchant, segregated funds, regulation, CFTC

JEL Classification: G18, G23, G24, G32, L51

Suggested Citation

Emm, Ekaterina E. and Gay, Gerald D. and Shen, Mo, Futures Commission Merchants, Customer Funds and Capital Requirements: An Organizational Analysis of the Futures Industry (January 29, 2019). Available at SSRN: https://ssrn.com/abstract=3380544 or http://dx.doi.org/10.2139/ssrn.3380544

Ekaterina E. Emm

Seattle University, Department of Finance ( email )

900 Broadway
Seattle, WA 98122
United States
206-296-5785 (Phone)

Gerald D. Gay (Contact Author)

Georgia State University - Department of Finance ( email )

Robinson College of Business
Atlanta, GA 30303-3083
United States
404-413-7321 (Phone)
404-413-7312 (Fax)

Mo Shen

Auburn University - Department of Finance ( email )

Auburn, AL 36849
United States

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