ANALYSIS: BGC chief Lutnick wants more clients on FMX Futures
31st October, 2024|Luke Jeffs
BGC Group chief Howard Lutnick has said he is “very happy” with his new US treasury futures trading platform, suggesting the next challenge for the project is to iron out “teething pains” and connect more clients.
Speaking on Thursday as he announced record third quarter revenue from the US group, BGC Group chairman and chief executive officer Lutnick said FMX Futures has performed in line with expectations since launch on September 23.
He told an earnings call: “We said we would open with between three and five FCMs (futures commission merchants) and we opened with five FCMs which we listed today.”
Lutnick continued: “We opened with five which was at the high end of what was expected so I was very happy but, by definition, we only had five FCMs so the only people we could do business with was the clients of those first five.
“Many FCMs didn’t start the process of connecting until after it [FMX Futures] was fully approved and it was announced, which we were totally aware of. If you remember what I said all alone: the first year is to get all the players on the field, that means all the FCMs signed up.”
US futures regulator the Commodity Futures Trading Commission currently lists 62 regulated futures commission merchants of which a handful face retail clients so are irrelevant for FMX Futures.
Lutnick said: “There are 50 FCMs, obviously we are focused on the largest ones, the top 20 of course, but we hope that by the end of the first year we’d have all the FCMs signed up and the end of the second year we’d have all the clients of the FCMs signed up, then we’d be ready in year three to bring full-on competition to the CME.”
BGC launched FMX Futures with a three-month Secured Overnight Financing Rate (SOFR) futures contract on September 23 backed by ten of the world’s largest banks and trading firms as partners in the venture.
As well as the five FCMs already live, FMX Futures is also supported by Bank of America, Barclays, Citadel Securities, Citi, Jump Trading Group, Morgan Stanley and Tower Research Capital.
Lutnick said on Thursday: “We expect to add five to ten of them over the next couple of quarters and then we should have most if not all of the partners signed up.”
CME’s three month SOFR future is the world’s most-traded interest rate future, reporting 91.1 million lots in September, according to FOW Data, which was that product’s third best month on record.
CME Group’s Chicago Board of Trade is home to the next two most-traded interest rate futures, the 10 Year Treasury Note, which traded 74.6 million lots last month, and the 5 Year Treasury Note which traded 62m contracts in September, according to FOW Data.
FMX Futures plans to launch the longer-dated 10 Year Treasury futures contract in the first quarter of next year, BGC said last month.
Lutnick added: “I think it’s going slightly better than expected in that we thought we’d have three to five and we had five. I’m not going to over-do-it, it’s perfectly fine, they’re doing business, there’s open interest every day. There’s a whole variety of teething pains and we are trying to make it smoother, simpler and easier for the FCMs and LCH.”
FMX Futures has a cross-margining agreement with LCH, the interest rate swaps clearing house owned by LSE Group, which promises margin savings to firms that have swaps with LCH and US treasury futures traded on FMX.
Lutnick continued: “I’d expect much of that to sort its way out through the end of this year and, as we go into next year, I think all these new things will be sorted out and we’ll be in excellent shape going forward.”
The comments came after BGC Group became on Thursday the latest big firm to report a strong third quarter with the US financial group’s quarterly revenue up 16% to a third quarter record of $561m (£432m). Within that, the New York-based group’s interest rates broking unit reported revenue up 19.6% to $174.3m.
