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Futures Commission Merchant - FCM

Futures Commission Merchant - FCM
TradingFutures Commodities TradingFutures and Commodities TradingFinancial Futures Trading

What is a Futures Commission Merchant - FCM

A futures commission merchant (FCM) assumes an essential part in empowering customers to take part in the futures markets. A FCM is an individual or organization engaged with the solicitation or acceptance of buy or sell orders for futures or options on futures in exchange for payment of money (commission) or different assets from customers. A FCM has the responsibility of gathering margins from customers. The FCM is likewise responsible for guaranteeing asset delivery after the futures contract has expired.

In Europe, FCMs are closely resembling clearing members of the futures market.

Rudiments of Futures Commission Merchant (FCM)

FCMs are required to be registered with the National Futures Association (NFA). This is required except if the entity handles transactions just for the firm itself, or the firm's members, top officers, or chiefs; or on the other hand in the event that the entity is a non-U.S. resident or firm with just non-U.S. customers and submits all trades for clearing to a FCM.

A FCM may either be a clearing member firm of at least one 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.

Moreover, FCMs must likewise meet the Commodity Futures Trading Commission (CFTC) rules:

  • Segregation of customer funds from the FCMs funds
  • Maintenance of at least $1,000,000 in adjusted net capital
  • Reporting, recordkeeping, and supervision of employees and affiliated representatives
  • Month to month submission of financial reports to the CFTC.

A futures commission merchant can handle futures contract orders as well as stretch out credit to customers wishing to go into such positions. These remember a considerable lot of the businesses with which investors for the futures markets deal.

In the event that a customer wishes to purchase (or sell) a futures contract, they contact a FCM who acts as an intermediary by purchasing (or selling) the contract for the customer's benefit. This is like what a stockbroker does with stocks. At maturity, or the delivery date, the FCM additionally ensures the contract is satisfied and either the commodity or cash is delivered to the customer.

FCMs, in addition to other things, enable farmers and companies (called commercials) to hedge their risks and give customers access to exchanges and clearinghouses. They can be auxiliaries of bigger financial firms or smaller, independent firms. Nonetheless, in recent years, and particularly since the sanctioning of the [Dodd-Frank](/dodd-frank-financial-regulatory-change bill) legislation in 2010, the numbers of FCMs, particularly small independents, have declined due to the regulatory burden.

Features

  • The FCM is likewise responsible for gathering edges from customers and guaranteeing delivery of assets or cash, per terms stipulated in the contract.
  • A FCM must be registered with the National Futures Association (NFA) and must be accredited by the Commodity Futures Trading Commission (CFTC).
  • A futures commission merchant (FCM) solicits and acknowledges trading for future contracts with customers.