Futures Commission Merchant

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A Futures Commission Merchant (FCM)[1] is an individual or organization that does both of the following:

FCMs are required to be registered with National Futures Association (NFA). FCM may also be members of one or more Designated Contract Markets.[2]

Registration is required unless the person handles transactions only for himself or his firm or firm's affiliates, top officers or directors; or if the person is a non-U.S. resident or firm with only non-U.S. customers and he or the firm submits all trades for clearing to an FCM.[3]

An FCM may either be a clearing member firm of one or more exchanges (a "clearing FCM") or a non-clearing member firm (a "non-clearing FCM"). Clearing FCMs are required to hold substantial deposits with the clearing house of any exchange of which it is a member. A non-clearing FCM must have its customers' trades cleared by a clearing FCM. Additionally, FCMs must follow CFTC guidelines in the following areas:

  • Segregation of customer funds from the FCM's funds;
  • Maintenance of a minimum of $1,000,000 in adjusted net capital;
  • Reporting, record keeping, and supervision of employees and affiliated brokers; and
  • Monthly submission of financial reports to the CFTC.[4]

SEC-registered broker-dealers that limit their futures-related activities to transactions involving certain types of investments can notice register with NFA as an FCM.

Futures Commission Merchants and the Dodd-Frank Act

In accordance with the Dodd-Frank Act, the CFTC issued several final rules regarding FCMs, including:

  • Investment of customer funds and funds held in an account for foreign futures and foreign options transactions;
  • Conflicts of interest for swap dealers, major swap participants, FCMs, and introducing brokers;
  • Required compliance policies; designation of chief compliance officer; and
  • Protection of cleared swaps customers before and after commodity broker bankruptcies.

For more information, visit the FCM regulation page on MarketsReformWiki.

References

  1. Futures Commission Merchant. National Futures Association, FCM Registration.
  2. Futures Commission Merchants(FCMS) and Introducing Brokers(IBS). CFTC.
  3. Futures Commission Merchant. National FuturesAssociation.
  4. Futures Commission Merchants and Introducing Brokers. CFTC.