Back in the mid- to late 1990s, I used to head up the most read edition of the year for Futures Magazine, called the Top 40 Brokers issue. We highlighted the Top 40 Futures Commission Merchants by assets held in customer accounts, also known as required segregated funds, along with other metrics reported to the CFTC.
With the number of FCMs whittled down to 54 today, the former Futures, now Modern Trader, just published a Top 30 article Top 30 Brokers: Mean, lean and ready for what comes next, Futures Magazine, and it didn’t even get top billing on the magazine cover.
A search back to my days, for 1997’s raw data couldn’t be found on the CFTC’s website, as they only go as far back at 2002. In that year-end, 169 FCMs reported to the CFTC, with a total of $52.32 billion held by US FCMs in customer segregated accounts, and $10.2 billion in so-called Part 30 funds, which are held for customers trading outside the US. That 169 figure is a bit misleading as it includes a number of entities that are legally listed at separate FCMs but are really under one corporate roof, such as Goldman Sachs & Co. and Goldman Sachs Execution & Clearing LP, and JP Morgan Clearing Corp. and JP Morgan Securities. Others names hold no customer assets at all.
As of October 31, 2015, the most recent reporting date published, the total segregated funds for the 76 registered US FCMs is $153.44 billion, with $42.33 billion in Part 30 funds. Again, the total is misleading, as several FCMs have legally filed submissions to the CFTC but have since closed or been kicked out of the FCM space, leaving the real number of US FCMs at 54.
In the past 13 years, the industry has seen growth in terms of seg funds almost triple. And that is just the US market. Last year, North America represented the largest growth region in volume, hitting 8.21 billion contracts, up 4.8 percent from a year earlier. A total of 21.87 billion contracts traded globally, according Futures Industry Association data published in March 2015.
So what’s going on here? The angst many feel is either a grasp for days gone by, or perhaps a reflection of what happens in every maturing industry that weeds out the weak and stale firms and rewards the innovative and strong. Goldman and JP Morgan have always been among the leaders. But firms such as RJ O’Brien have grown dramatically as well in terms of seg funds over the past several years, topping $4 billion in seg funds in October, up from $14.4 million (yes, million) in December 2002 to earn a top 10 or 11 ranking. Another non-bank FCM, Rosenthal Collins Group, (which included Rosenthal Collins Group and Rosenthal Collins Global Securities) posted $1.36 billion in seg funds in October, up from $11.1 million at the end of 2002.
There is no doubt that the cost of doing business as an FCM has risen with the landslide of rules from the Dodd-Frank Act. The locked interest rate environment until the first Fed hike last week has hurt firms that used to cash in on the interest rates from customer deposits and the harsh commission environment has trimmed profits further on traditional brokerage. Toss in a slew of exchange data fees and you have an industry with much to cry about. Yet, firms such as RJO, RCG, TD Ameritrade and others have boasted some pretty dramatic growth in the retail and institutional futures trading space. Meanwhile, I can only think of one contrarian, Tradovate, looking to get into the FCM space.
Despite all of the challenges this industry has faced, it is growing. Those that can grasp that trend and adapt are growing as well. It’s just fewer of them.