Declining Revenues of FCMs in the US: Time to Start Worrying?

by Anshuman Jaswal, PhD, February 7, 2013
Industry Trends
North America

Abstract

Futures commission merchants (FCMs) in the US are trying to adapt to the changing requirements of the financial markets. The crisis and ensuing slowdown in business have meant that some firms have gone out of business, while others are taking advantage of volatility to create a niche for themselves.

In the report Declining Revenues of FCMs in the US: Time to Start Worrying?, Celent considers the financial performance of the listed derivatives businesses of FCMs in the last decade. The Dodd-Frank Act (DFA) has meant that the move of OTC derivatives toward clearing through CCPs and trading through swap execution facilities (SEFs) is going to encourage new listed derivatives products, as exchanges also vie for a share of the lucrative OTC derivatives business. Several swap futures products have been introduced to bridge the gap between the listed and the OTC markets, and such market innovation is expected to continue.

Tier II firms seemed to have coped much better than Tier I with regard to the crisis and its aftermath. Between 2003 and 2012, their average revenues declined only in the years 2005 and 2010. What’s more, 2012 had marginally higher overall Tier II revenues than 2009—a different result than Tier I firms and the industry as a whole.

“The leading FCMs in the US are struggling with falling revenues and profits,” says Anshuman Jaswal, PhD, Senior Analyst with Celent’s Securities & Investments Group and author of the report. “This puts them in an unenviable position, especially when we consider the overall impact and related costs of various regulatory implementations taking place in the next couple of years.”

This report looks at the revenues and profitability of the industry as well as Tier I and II firms in the last decade and analyzes the trends underlying their performance. It also discusses the impact of the FCMs’ performance, as well other players such as the exchanges, which are closely connected to FCMs.

This 16-page report contains seven figures.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

Introduction

3

Market Overview

4

 

Methodology

4

 

Revenue and Profitability Estimates

4

 

FCMs Are in a Tough Position

7

 

Lower Profitability and Regulations Are Driving Change for Exchanges

7

Conclusion

9

Leveraging Celent’s Expertise

10

 

Support for Financial Institutions

10

 

Support for Vendors

10

Related Celent Research

11

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