THE BLOG
12/09/2013 04:44 pm ET Updated Feb 08, 2014

Data Fees Kick CTAs and IBs When They're Down

I reported on the poor timing of the increase in exchange and data fees by CME Group two weeks ago but the full impact, particularly of the data fees, is just coming into focus and market participants are seeing sticker shock.

While no one likes a tax increase, which this basically is, people tend to accept it and move on. However, the data fees announced by CME Group stand to have a much larger impact, particularly for so-called professional traders that includes anyone with a registration, i.e. introducing brokers (IBs), Commodity trading advisors (CTAs), floor brokers, associated persons etc. And the fee, $85, is levied for each individual exchange (CBOT, CME, Nymex, Comex) and each platform according to a letter sent to industry participants by industry veteran Les Rosenthal (see link to text of letter below). So any IB or CTA who trades on all exchanges and services customers by providing multiple platforms (which nearly all do) are looking at a pretty hefty monthly increase at a time when they are getting squeezed on multiple fronts.

Previously, these fees were waived for market users. Rosenthal who has served on the boards of both the Chicago Board of Trade and Chicago Mercantile Exchange prior to the merger of the two wanted to inform market participants of the widespread nature of these fees and urged them to share their concerns with the current CME board.

Susan Osmanski, Senior Manager at Turnkey Trading Partners, says the data fee is the most egregious aspect of this. "It may very well be the tipping point to put some people out of business," Osmanski says. "One small CTA told me that this will cost him over $2,000 per month."

An IB told Osmanski, "My understanding is the fees will apply per log in, I have four platforms plus a mobile app so I would have an increase in hard costs from $0 to $1700 per month overnight when this thing goes into effect." He added, "The other thing that really needs to be clarified is non-professional users are currently defined as natural persons, so that would imply that customers who open under an LLC, Corporation, Trust, etc. would have to pay $340 per month in addition to their platform costs."

While the exchange fees will be passed on to end users, the data fees will hit CTAs and IBs directly. Osmanski also points out that these fees will hit in addition to the increased costs associated with compliance to CFTC rule 1.35, which she expects to be substantial.

The National Introducing Brokers Association (Niba) has requested a face-to-face meeting with the CME Group and is soliciting questions from industry participants regarding the fee increases to take to CME Group.

Recently CME Group was a forceful advocate on behalf of industry participants when it came to the Commodity Futures Trading Commission's (CFTC) reinterpretation of the residual interest rule. It seems odd they would place such a burden on their end users after so forcefully describing the negative potential impact of that rule.

Leslie Rosenthal letter to Futures Market Participants