By Tom Polansek
BOCA RATON, Florida, March 14 CME Group Inc
, the world's largest futures exchange operator, is
facing mounting criticism from brokers over fee increases that
are set to raise costs for futures customers.
CME, which owns the Chicago Board of Trade, Chicago
Mercantile Exchange and other markets, has been constantly
meeting with brokers upset over the transaction and market-data
fees that were announced in November, Executive Chairman
Terrence Duffy said this week.
The number of meetings on the issue picked up this week
during an annual industry conference in Florida.
"We're taking a very judicious look at how we're
implementing this data fee and, not only the data fee, but the
increase in general," Duffy said in an interview at the
conference. "If we're missing something that we didn't see,
we're listening to it. That's yet to be completely analyzed."
CME said on Nov. 12 it would begin charging fees to those
who distribute its market data. The fees took effect immediately
for new data users but could be delayed until 2015 for existing
users who qualified for waivers.
The exchange operator also increased transaction fees this
year for nearly all its major products as part of its first
significant fee hike since 2009.
CME expected revenues from transaction fees to rise 2
percent to 3 percent because of the increases, Chief Financial
Officer James Parisi said on an earnings call last month. He
projected a "somewhat meaningful" revenue increase from higher
CME likely won't be able to expand profits as planned
because customers will consolidate data terminals rather than
pay the market-data fees, said Gerald Corcoran, chief executive
officer of RJ O'Brien & Associates, the largest
independent U.S. futures broker.
RJ O'Brien projected the increased fees would cost its
customers several million dollars a year.
"We built our systems on the understanding, belief and
agreement with the CME that we wouldn't be charged market-data
fees for providing our customers access to the market, and
they've pulled the rug on us," he said in an interview on
The market-data fees were overreaching and were "put
together without significant consultation from their FCM
partners," he said, referring to brokers known as futures
RJ O'Brien had two "productive" meetings with CME at the
conference in Florida, including one that included
representatives of other firms, Corcoran said on Friday. He said
he was "encouraged that CME was open-minded to working with us
and these firms to find a solution."
The Futures Industry Association, which represents brokers
and exchanges, sent a letter last month to CME expressing
concerns about the fees. It helped to arrange meetings on the
topic at the conference this week.
Brokers said the increases were ill-timed because the
futures industry was still struggling with the Federal Reserve's
extension of near-zero interest rates. Low interest rates for
years have eradicated hope of a rebound in a key source of
income: interest on customers' margins. While most large brokers
must pass on interest earned on collateral to their customers,
smaller firms were able to retain most of that revenue.
Brokerage executives from Newedge USA LLC, Citigroup Global
Markets and Rosenthal Collins Group LLC said during a panel at
the conference on Thursday that their biggest challenge was
"The reality is, as fees go up you're always going to get
folks complaining," said George Simonetti, head of markets
clearing and futures execution for Wells Fargo Securities.
Higher fees from exchanges are passed "straight through to the
client," he said.
Leslie Rosenthal, managing member of Rosenthal Collins and a
former Chicago Board of Trade chairman, circulated a letter in
November calling on CME to delay the fee increases.
CME said it had deferred from making substantial fee changes
since 2009 to be "mindful to client impact during a challenging