The number of futures commission merchants (FCMs) serving the US futures markets will continue to decline despite a growing willingness of clients to diversify relationships, according to a recent TABB Group report.
In its 'US futures market: state of the industry' study, the financial research firm predicted the number of FCMs registered with the Commodity Futures Trading Commission would fall below 100 by the end of 2013, having stood at 154 in December 2007.
High profile closures since then include Lehman Brothers, MF Global and Peregrine Capital. The present 110 FCMs will fight for total revenues of around US$4 billion in 2013, which marks a 35% decline on 2008 levels. The vast majority of revenues earned by FCMs are now derived from clearing and execution services, with interest income negligible since 2010 and unlikely to pick up in light of prevailing near-zero interest rates.
Although the top three FCMs have enjoyed almost 40% of total futures revenues since January 2009, TABB forecasts that their share of business will fall closer to 30% over the next year as clients diversify relationships to the next tier of providers. As a result, the share of business secured by the top ten US FCMs is likely to rise to more than 75%.
UBS research quoted in the TABB study suggests that the impending migration of swaps to a centrally cleared and exchange-traded environment will increase the importance of trusted relationships in the allocation of business. When asked how they were choosing their FCM/clearing broker, 29% of clients with high OTC exposures and 40% with low OTC exposures cited existing relationships, while 24% and 13% respectively nominated price.