I ran into an old friend at the Chicago Board of Trade yesterday and he told me the following joke: "What does Obamacare and CME Group's new data fees have in common? One is 28,000 pages the other is 18 pages and both were voted on without anyone reading them."
Before Christmas I posted a story -- along with a link to a letter futures legend Les Rosenthal wrote to industry participants--discussing the impact these fees will have on people who fall under the broad category of professional trader.
Turned out that the potential cost to introducing brokers (IBs), commodity trading advisers (CTAs) and any registered entity was much more than originally believed but no one could be sure by how much because the document was so confusing. Mike Burke, CEO of IB Highground Trading Group, did a quick analysis and figured his cost would be north of $20,000 per month. And that is up from zero.
Burke was part of a contingent from the National Introducing Brokers Association (Niba) that met with representatives of CME Group to discuss data fees.
Burke learned that his worst case scenario; where it looked like he would have to pay the $85 fee for all four exchanges, for every broker in his shop, multiplied by every front end he used, multiplied by every futures commission merchant (FCM) he executes through, would not be the case. He won't be charged for each FCM but any of his customers -- even if they are trading for themselves -- will have to pay if they have created an LLC or Trust or some other legal designation. "It is still a huge number for us," Burke says, estimating that his cost will be at least $7,140 per month and could easily be double that.
The confusion goes back to my friend's joke. And perhaps the reason that it has taken a bit of time for outrage to build over the data fee issue is that the release annoucning it was extremely confusing. "You could have a PhD and still not know what they are talking about," Burke says regarding the announcement of a data fee increase," adding, "Put it in English!"
After meeting with Niba, the CME has agreed to listen to concerns of industry particpants as well as sending out an update clarifying some of the particulars of the fees. "[The CME] indicated they would be putting out another notice to clear up some misunderstandings about how the fees will be charged," says Niba President Melinda Schramm. "We have asked them to have that notice ready for publication in our next member newsletter which is scheduled for Dec. 17."
She added, "We also asked them to reconsider the definition of 'pro' user vs. 'non-pro' user. The current definition will include many if not most of today's customers. Accounts for ag traders or energy traders are now often opened as a 'LLC', 'Inc.' or a 'Trust' even if the account is really a wife & husband or dad & son and only one or both is the account decision maker."
The controversy took a while to brew because of the confusing nature of the fee structure. Ryan Griffeth, head of Postrock Brokerage notes in a letter titled: "Market Participants Perspective on CME Market Data Fee Increase," that, "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."
Griffeth notes that when you add up all the different ways the fees are applied--particularly with new rules and best practices developed after the MF Global and Peregrine Financial Group debacles -- it quickly becomes excessive. "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," Griffeth says. "So a fee of $340 per month per user can become excessively expensive in a hurry. For example, if a broker had three trading platforms and a mobile application, their costs to do business would increase from zero to $1,360 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."
He added that the CME understands the potential impact of these fees as Executive Chairman Terry Duffy has recently testified before Congress on the negative impact a transaction tax would have on end users of these markets.
Griffeth said of Duffy's testimony, "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."