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There are at least three kinds of FCMs: Non-clearing Fully Disclosed FCM, Non-clearing Non-Disclosed FCMs and Clearing FCMs. Some would say there is a fourth kind, a fraudulent FCM.
A non-clearing FCM holds customer funds. A fully disclosed non-clearing FCM discloses the names of their customers to their clearing broker (a clearing FCM) and the customer may in fact fill out account forms from the clearing FCM. A non-clearing non-disclosed FCM has one omnibus account at the clearing firm that all trades are placed in and the names and financial information of the individual customers is not disclosed to the clearing FCM. Actually, there may be more than one omnibus account, but that is not significant.
In both cases the non-clearing FCM has funds up with the clearing FCM to fully margin all the positions. However, a non-disclosed non-clearing FCM would hold the excess customer funds in their own segregated customer accounts. In a fully disclosed relationship, all the customer funds would be held by the clearing broker FCM and the non-clearing FCM would receive some percentage of the interest earned.
The real value of being an FCM is in the interest earned. However, at these interest rate levels, that is not entirely true.
A clearing FCM holds all the accounts and all the funds themselves. However, a clearing FCM may not be a member of all exchanges, so they may even have omnibus accounts with other clearing FCMs that are members of the other exchanges.
Many traders don't even pay attention to who is holding their money. We will regularly have clients who make checks payable to our IB rather than the FCM. We have to return those checks and have them try again.
If you are a client of an Introducing Broker then your account could be with a clearing or non-clearing FCM. A non-clearing FCM may have several clearing FCM relationships to take advantage of cost differentials.
Just as a comparison, there are two types of Introducing Brokers; Guaranteed and Independent. A GIB is guaranteed financially and compliance-wise by the FCM and may only have accounts with one FCM. The Price Group is a GIB with a clearing agreement with Man Financial. An Independent IB or IIB is an IB that meets some minimum financial requirements ($30K in capital I think), may clear more than one FCM and is responsible for its own compliance.
A fraudulent FCM........is another story completely.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it! John J. Lothian is the President of the Electronic Trading Division of The Price Futures Group, Inc.
In a message dated 2/14/2002 12:22:08 PM Central Standard Time, bogeybunky@xxxxxxxxxxxxxx writes:
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