The purpose of this letter is to express an opinion regarding the CME’s announcement to increase its market data fees. Market participants, professional users and brokers alike are largely unaware of what the CME intends to do and how much of an impact it will have on their trading activities and respective businesses. It should be noted that from a broker’s perspective it is understood that real time access to market data is not something that is expected to be at no charge. Brokerage firms and traders are willing to pay for real time access, however the fees associated with such access should be reasonable. Increases to fees are expected as well but should also be within reason and not in excess.
The CME has announced it will eliminate the existing waiver on market data distribution for all market participants beginning in March 2014 for new users and “the beginning” of 2015 for existing users. This “tax” is being levied on all market participants; end users, professional traders and brokers. According to the CME’s Fee Schedule 5 there will be a monthly user/device fee of $85 per exchange for “professional users” accessing real time market data, a $5 monthly user/device fee for “non-professional users” accessing real time depth of market data and an additional $1 monthly user/device fee for “non-professional users” accessing real time top of book data. This means that the cost of doing business for a futures broker and/or professional trader has gone up by 340 times its current cost and 6 times for an individual trader at a minimum.
The market data fee at face value is not unreasonable, $340 to receive live market data. However, the way it has been structured by the CME in what appears to be an attempt to increase revenues as much as possible, levies the fee on a per user basis. The overwhelming majority of futures brokers in the industry have multiple trading platforms and many use mobile applications as well. In fact, many have set up redundancies in trading platforms on the advice and direction of the National Futures Association to comply with disaster recovery efforts. So a fee of $340 per month per user can become excessively expensive in a hurry. For example, if a broker had 3 trading platforms and a mobile application, their costs to do business would increase from zero to $1360 per month. If a brokerage firm has 10 brokers with the same set up, which is not uncommon, that means said firm will now receive a bill for $13,600 per month. That is as much or more than some offices cost to rent on a monthly basis. This does not appear to be fair or just. These are unprecedented cost increases and are not only burdensome but also troubling to an industry that has been so negatively impacted in the recent past due to a number of factors largely out of its control.
Does the CME realize just how much of an impact this will have on the brokerage and trading community? Yes, as a matter of fact, it does. The House Committee on Agriculture held a hearing on the future of the CFTC on May 21, 2013 and gave the CME an opportunity to express its opinion. One of the topics for discussion was the funding of the CFTC and a proposal to have the futures industry self fund the agency’s budget increase through a transactional “user fee.” The CME sent its executive chairman and president, Terry Duffy to testify before the committee. Mr. Duffy said, “Imposing this new tax would increase the cost of business for all customers because it would reduce liquidity, increase volatility, and impair the efficient use of U.S. futures markets. It will make it more difficult and expensive for farmers, ranchers, and other end users to hedge commodity price risk in the market. This will force farmers and other market participants to pass along these higher costs to consumers in the form of higher food prices.” This is a very powerful statement and an excellent reason why one should not impose a drastic increase in transactional fees to the industry. The same logic should hold true when applied to the CME’s new fee increases, which in addition to the market data fees also has its own transactional fee increase.
As stated earlier, most if not all brokers understand there is a cost to doing business, however this cost should not be grossly excessive. The CME needs to re-consider its approach to this fee increase. Any of the following scenarios would be feasible and allow both sides of this fee increase to prosper:
- Non-Professional Users are defined as non-registered persons and/or entities
- Partial data fee waiver extended to the registration categories of IB and CTA
- Data Feed Fee waiver extended to users trading less than 1 million contracts per year
- Brokers are required to pay full price, $85, for market data of one exchange where they actively participate and receive data from the other 3 exchanges under a waiver to encourage additional trade volume
- Market data fee is charged per registrant and not per user/login
- Market data fee is rolled out over a 10 year period with a $10/exchange/user/month increase per year allowing the exchange to capture revenue streams and the brokerage community to absorb this cost more gradually
- Create different tiers of Professional market data users, i.e. Financial institution, High Frequency Trading firm, Large Introducing Broker, Small Introducing Broker, CTA/CPO, Floor trader and assess fees on a sliding scale where the largest (and most profitable) participants are paying the highest rates and the smallest participants are paying lesser rates.
- Eliminate the distinction between non professional and professional fee since there is no difference in the market data and charge $99/month flat fee for all market data
- Reduce the Professional fees to $24 per exchange—four times that of a non-professional user
- Create a different rate tier or waiver classification for brokers/traders who have log ins solely for risk management or back up purposes and do not typically use for execution
- Assess fees as originally proposed at $340 per month and charge $5 per month for any additional log ins
The CME recently received the award of Commodity Exchange of the Year. The CME announced multiple contracts have been trading at record volume lately. In fact, the CME group volume averaged 11.1 million contracts per day in October 2013, which is up 12 percent from the same time frame in the previous year. CME group has announced it will pay its shareholders a dividend of $0.45 per share on December 26, 2013. CME had strong second quarter 2013 financial results. Trade volume in June 2013 averaged 16.9 million contracts per day representing a 29 percent increase from the same time frame in the previous year. In June 2013 CME announced it saw record trading in its Global FX complex transacting $239 Billion in notional volume. This is just a glimpse into how incredibly successful the CME Group is and how much revenue it generates. The economic justification for this level of fee increase is very hard to understand, especially to the broker and end user who have to pay for them out of their pocket(s).
The CME Group should re-consider its approach to this market data fee increase. CME should remember how it took a stance to fight off the same type of fee proposed by politicians in Washington D.C. and protect the integrity of its markets and be mindful of just how much of an impact will be felt by the implementation of these fees as they are currently written. Brokers and traders across the country are now asking themselves: Is there any value provided by the CME? Where is the value in becoming a member of the exchange? Is there an alternative market place to conduct my business? The answer at the present point in time is there is no other feasible market to trade most of the CME contracts, but is that the type of attitude an organization with the stature of the CME Group should accept from its customers? Many small market participants and brokerage firms are just as valuable if not more than a single high volume firm and will be better to you over the long term. Work with the brokerage community and the brokerage community will work with you.
Postrock Brokerage, LLC