Roles and Responsibilities of a Futures Commission Merchant
An FCM (Futures Commission Merchant) is an individual or an organisation that executes buy and sell orders for futures contracts or commodity options. It has a number of responsibilities, including but not limited to providing margins for customer orders, accepting orders for buying or selling futures contracts, and retail off-exchange forex contracts or swaps. An FCM can accept cash or other assets from interested parties to carry out the orders. They are also responsible for ensuring asset delivery once the futures contract has expired. FCMs play a crucial role in facilitating the efficient functioning of futures markets, providing liquidity, and ensuring the integrity of trading operations.
What are the Roles and Responsibilities of a Futures Commission Merchant?
As discussed above, the primary role of an FCM is to act as an intermediary between the buyers and sellers of futures contracts and futures options. Now let us take a look at some of the major roles a little closer:
- Trade Execution: The primary responsibility of FCMs is to carry out the trade on behalf of the buyers and sellers.
- Clearing and Selling Trades: FCMs enable the transfer of funds and securities to allow for clearing and selling trades.
- Supplying Market Information: FCMs have the responsibility of providing precise and relevant information about market conditions to the customers.
- Upkeep of Customer Accounts: FCMs help manage the accounts of customers by collecting margin payments and making sure that customers meet regulatory requirements.
- Compliance: FMCs are responsible for complying with the regulations laid out by the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA).
- Managing Risk: FMCs manage the risk a customer faces on behalf of them. They ensure that the customer has sufficient collateral to take care of potential losses.
- Customer Service: Rapid and accurate answering of all questions a customer may have comes under the responsibilities of FCMs.
- Cyber Security: FMCs keep their customers’ accounts secure by protecting them against cyber attacks.
- Record Keeping: FMCs have to maintain records on behalf of the customer. This includes complete and up-to-date records of trades, accounts, and other transactions. !
What are the Obligations of a Futures Commission Merchant?
An FCM has an array of obligations centred around consumer protection, regulatory compliance, and order execution, among others.
Here's a list of an FCM's main obligations:
1. Ensuring Customer Protection: An FCM is obligated to store customer funds in separate accounts. An FCM cannot mix a customer's funds with its own. This ensures clarity, transparency and proper account-keeping.
2. Maintaining Finances: FCMs are obligated to share their financial reports with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). FCMs are required to maintain a certain amount of funds according to the rules of CFTC.
3. Compliance with Regulations: It is the primary responsibility of an FCM to ensure that it meets all rules and regulations that govern it.
The obligations and roles of an FCM are tightly intertwined. Apart from the above major obligations, an FCM is also obligated to participate in activities like customer education and risk management.
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Closing Thoughts
A Future Commissions Merchant holds great importance in making future options and contracts trades happen. Their roles and obligations aim to engage customers in successful futures trading. In a nutshell, they handle the customers' accounts on behalf of them. This includes clearing trades, providing margins for transactions, supplying information regarding the market, keeping records of transactions, providing prompt customer service, securing the account and ensuring compliance with the norms. They are affiliated with the Commodity Futures Trading Commission (CFTC) and are members of the National Futures Association (NFA).
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