As the NIBA has been reporting since last November, the CME Group is discontinuing the current market data waiver effective January 2015. For many members of the NIBA and traders at large, the financial impact could be devastating.
The Zaner Group, a longtime member of the NIBA located in Chicago, is a well established IB. They are a good example of what I consider to be a traditional IB model. The knowledgeable brokers have personal relationships with their clients and offer a variety of services. Matt Zaner, CEO of Zaner Group, shared a breakdown of costs associated with the platforms and data they currently use together with his expected expenses after the waiver is discontinued. The results are staggering.
he facts: An office with a dozen brokers can expect an increase in expenses for market data alone of over $15,000 per month. All firms will see costs go up.
Zaner Group isn’t alone. As I talked with NIBA members and others, both IBs and CTAs, the numbers are consistently bleak. As President of the NIBA, I have talked to many registrants who were shocked when we worked through their numbers.
I am sure all of us are taking a close look at our current fees to see if any excess fat can be trimmed, and we may find that a few terminals or subscriptions can be cut here and there. But I expect that to do little good, since we all need redundancy systems, and many of us need multiple platforms in order to access our multiple FCMs. Additionally, we must comply with Disaster Recovery and Procedure guidelines or face non-compliance fees or sanctions from the regulators.
Moreover, I don’t believe the CME Group will get the desired result over the long term. In the NIBA’s initial discussions with the Exchange during December, 2013, it appeared the exchange had not pursued this revenue stream for years, granting various waivers from payment. And, it is true that by discontinuing the waiver, they have only matched what ICE already has in place. But, now that prices are essentially level, the CME will find it’s competitive edge -- a less expensive place to trade -- gone. In fact, my brokers and traders can trade crude oil on multiple exchanges, all at about the same price. All IBs and CTAs will be looking to those alternatives - it only makes business sense.
You can probably see where I’m going with this. Today, the Chicago Tribune reported the CME Group is laying off about 150 employees within the next few weeks. The Tribune article cited low volume as one fact the exchange considered when making this decision. Over time, we will see lower volumes at the CME Group as a direct result of the fees effective this coming January. What is the CME Groups’s next cost cutting/revenue enhancing measure? The exchange’s short-sightedness may haunt them in days to come.