Top Futures Brokers – The 30 Best Firms of 2015 is back with it’s annual roundup of the top futures brokers of 2015. This year’s survey of futures commission merchants is published in the current issue of Modern Trader, and follows what has been another tough year for both retail and institutional brokerages.

top futures brokers 2015

One trend is immediately obvious, in 2013 we had Top 50 Brokers and in 2014 we saw the list reduced to the Top 40 Brokers; this year we’re looking at just 30 firms left standing. With the credit crisis and the turmoil it brought now nearly a decade behind us, why are the number of Futures Commission Merchants (FCMs) still falling? Is this an industry in decline, or simply a leaning out of the heard?

Take a look at how we rated futures firms: Compare Futures Brokers

declining number of futures brokers

The contracting FCM industry was one of the most heavily discussed subjects at the Futures Industry Association Expo in Chicago in November. In the seven years since the financial crisis reached its peak, the number of Commodity Futures Trading Commission (CFTC) registered futures brokers has fallen from over 150 to fewer than 70. According to Modern Trader’s Editor-in-Chief, Daniel Collins, those left standing are keen to put a positive spin on their survival:

They see a bit of Darwinism at work and say the industry is more secure because the remaining FCMs are stronger and less likely to present a contagion risk to the rest of the industry. Many FCMs see the resultant restructuring and consolidation as a net positive and they say it’s time to stop complaining and move on to whatever comes next.

futures industry association expo 2015

Of course, it’s easier to see this as a positive if you’re one of the surviving brokerages, especially if you’re ranked among the 30 top futures brokers in the Modern Trader’s shortlist. But on the other hand, complaining isn’t going to help the surviving firms to develop their businesses (much of the additional regulatory and compliance costs only now coming into effect are the result of years old legislation made in the aftermath of the crisis). The remaining FCMs are clearly focused on identifying the efficiencies they need to prosper in the current regulatory climate, and on streamlining their business models. Some of the key areas that FCMs are currently concentrating on are:

  • Cyber Security – Futures brokers were previously asked to collect more information about their customers, and now they’re being asked to review how they store and protect this sensitive data against cyber attacks.
  • Spoofing – The practice of submitting orders of significant size that are never intended to be executed in an attempt to influence other market participant’s perception of price, ‘spoofing’ is becoming an increasing concern of regulators, and brokers are left to navigate the many ambiguities that surround this practice.
  • Risk – The Swiss Franc liquidity crisis earlier this year brought risk management to the forefront. Some of the largest losses in monetary terms were in the hands of FCMs, as liquidity in currency futures dried up far more dramatically than in the spot forex markets. Though firms such as Interactive Brokers were affected, the losses which put many spot forex brokers into insolvency was relatively insignificant for the FCMs, which are generally far better capitalized.

Thomas Petterfy, Chairman and CEO of Interactive Brokers Group is among those who think the industry had become bloated and views the changes as a positive, especially for clients of the remaining firms:

As a thriving member of that community, it is good what they have done. It makes sure that people are properly capitalized, properly staffed; ultimately it did raise the cost of doing business and made it prohibitive to some folks. While that is surely negative to a small entrant or new entrant, for those of us that are properly capitalized it is a positive.

In theory, clients of any remaining FCM stand to benefit from the changes, as they operate in an environment of lower margins, risk averse management, and stable, compliant processes. It also means that there is less choice for those looking to open a new brokerage account, and less opportunity for the top futures brokers to distinguish themselves or their product offering from the competition.

The Year Ahead – the Top Futures Brokers in 2016

The 2015 roundup of the top futures brokers carries the subtitle ‘lean, mean, and ready for what comes next’, and there are certainly good reasons to expected the remaining FCMs to successfully consolidate their positions in the coming year.

Rising interest rates should prove a boon to the brokerage industry, though this is obviously a factor that remains outside of their control and cannot be counted on. Some industry leaders have made strong calls for more cooperation from the exchanges themselves, and most FCMs would like to see exchanges lower their clearing fees rather than pushing the costs of brokerage lower.

Thomas Peterffy, however, is convinced that the rout is not yet ended and that more firms will struggle to faced the rising costs surrounding compliance and regulation.

There is a lot of expense in building technology and it is crazy that so many brokers will build the same technology. Everybody is offering the same thing. Why do it so many times? I expect we will be down to 40 brokers in the next three years.

tradovate logo

Not many people view futures commission merchants as a growth industry at the moment, but one FCM with an innovate model is due to be launched in early 2016. Rick Tomsic, who founded the broker Open E Cry in 2002 sees an opportunity in the dearth of firms catering to smaller sized customers, and with his new FCM venture Tradovate he plans to achieve cost efficiencies with end-to-end ownership of the technology, removing the third party costs associated with software and data vendors.

You can read Daniel Collins full article at here: Top 30 Brokers: Mean, Lean, and Ready for What Comes Next.