FCMs still haunted by the past FCMs still face challenges despite the potential lifting of regulations and higher interest rates Like the rattling chains of Jacob Marley haunting Scrooge, the ghosts of MF Global and PFG still wander the halls at futures commission merchants today and remain alive and well in the manifested actions of CTAs who diversify their funds among brokers. But realities exist: there are fewer FCMs in which to diversify, and many bank FCMs won’t take anything smaller than an account that can guarantee them $1m in fees annually, which they can get because big clients want sizeable balance sheets and credit worthiness... Today the top 10 firms (nine bank FCMs and non-bank ADMIS) account for 73% of segregated funds, while in 2011 they accounted for roughly 77% of segregated funds. According to CFTC reports, in 2011 there were 110 FCMs, while today there are 66 (and only 58 of those carry segregated funds)... “Five years ago you could open a bank FCM account in a month, but now it takes at least four months,” he says. Vassallo adds that the process sometimes is so “arduous” that the client will forgo the hedge and just accept the risk to avoid the paper nightmare. There are also new fees. Matt Peluse, head of Esulep Management, which uses five FCMs, notes that they get charged now for capital carry and even for posting T-bills. “They are ticky-tack charges in the scheme of things, it’s not a lot of money but we’re a large client for them.” Another complaint from the CTA side is excessive margin requirements by FCMs. “Requiring multiples of exchange minimum margins is up there on our [issue] list. Perhaps we’re more sensitive to that than others as we were forced to hold 2x exchange minimums at MF Global before they went under, and that just made it more difficult for us to stay in business until we recovered our money,” one CEO of a long-time CTA says... “The cost of running the business is high due to the increased regulatory burdens related to leverage and capital (RWA), as well as from IHC requirements,” says Alain Courbebaisse, head of US prime brokerage, Société Générale... “Plus, a larger proportion of client fees are going to the exchanges rather than to the FCMs, which is crimping profitability at FCMs. “We are still in an environment where margins for FCMs are being squeezed and profitability is low.” Joe Guinan, chairman and CEO of Advantage Futures concurs. “Because exchanges are charging clients so much money for quote fees, they have shrunk the industry and forced out a lot of traders,” he says. He adds that a pretax trading profit five years ago of $50,000 might net $20,000 today because of higher exchange and quote fees. “Yes, it’s a pass along to the client, but a rising cost to the end user has shrunk the number of traders, which in turn has hurt the FCMs.”... “It seems most FCMs these days are run by compliance people and have no interest in doing what’s best for their customer,” says Mike Dever of Brandywine Asset Management. “Their first response, which they often adhere to, is ‘no’...
Abn Amro want a minimum of $16,000 a month in commissions. Interactive brokers for everyone else, now upto $93 billion in customer deposits.
Many more like? IB also has an institutional desk abd they don't freak out when talking about giveups
ABN is a HFT favorite. I don't think IB is eager to match their rates for ultra-high-turnover clients.
- Off-market trading ? you want to close an exposure after market is closed at close price, they'll give you a quote at +/- 5 ticks. - You can segregate your money in 1 phone call and ask it to be off-balance sheet, not sure how IB segregates your money. - You have access to block trading in pretty much any market you want, e.g. you'll get a quote for 100m$ and then they figure out how to hedge it. - You have access to more market, there are loads of exchanges that IB doesn't give you access to, especially in the frontier / emerging market area (Taiwan stock exchange ? Johannesburg ? ...) - You can get quotes for OTC products, some may be useful. Example: when Soybeans futures price drops too much, the exchange has a limit down process and the price cannot fall further. However, the actual underlying value keeps falling, you will have a guy at your Prime Broker who will quote you a Call with a strike @ 0 for the next day and the premium to pay will be lower than the current limited-down future price. - etc.
I use IB's institutional desk. - Off-market trading at market close price? I do not trade stocks, so I am not sure IB offers after-market trading. But certainly do you not get closed at the closing price if that is disadvantageous to ABN. - Not sure why you want to segregate funds but you can definitely move money between accounts, even electronically. With IB as with most other prime brokers you can actually hold your funds with a deposit bank and have a letter of credit issues. - You can as well phone in the institutional desk and ask them for a quote (RFQ) for a large position offload. - It may possibly be that ABN offers access to more market but certainly not because they are direct member of those additional markets, via DMA you can pretty much gain access to any market without your PB having to have exchange membership of such market. But yes I wish IB would expand on their product range (Taiwan YES, South Asia, ..., and especially a broader Fx product range)
I can absolutely tell you that ABN is not a "hft favorite". Not only does their technology stack suck but they do not have direct exchange membership with many exchanges hft target.
HFT is a key customer demographic for them. They undercut everyone on price to buy market share. Call your ABN coverage and ask for yourself.