US Futures Intermediary License Levels

The regulatory landscape of the US derivatives industry and jurisdiction can be complicated and tough to navigate. While there are many different registrations, regulators, and dimensions, the following is focused on US derivatives intermediaries, the different regulatory burdens, and respective regulatory capabilities each level enables.

Understanding these intermediary levels is crucial for market participants to ensure compliance and optimize their operational strategies. Each level of registration comes with specific responsibilities and opportunities, allowing firms to align their business models with regulatory requirements while maximizing their market engagement.

This guide provides an overview of the various intermediary license levels, detailing key registration requirements, regulatory load, and the capabilities each level affords. By familiarizing themselves with these distinctions, firms can better position themselves within the US derivatives market, leveraging the appropriate licenses to enhance their service offerings and maintain regulatory compliance.

Intermediary Definitions

• ISV (Independent Software Vendor): A technology provider that develops and offers trading software or platforms to brokersbut does not engage in trade solicitation.
• IB (Introducing Broker): A firm that solicits or accepts orders for futures contracts but does not accept money, securities, or property from customers to support these orders.
  • GIB (Guaranteed Introducing Broker): An introducing broker that has entered into a guarantee agreement with an FCM, reducing their regulatory and capital requirements.
  • IIB (Independent Introducing Broker): An introducing broker that maintains a direct relationship with the FCM and is not guaranteed by another entity.
• FCM (Futures Commission Merchant): A firm that solicits or accepts orders for futures contracts, options on futures, retail off-exchange forex contracts or swaps and accepts money or other assets from customers to support such orders. FCMs are responsible for ensuring the proper handling of customer funds and must adhere to strict regulatory requirements to maintain financial integrity and protect customer interests.
  • EFCM (Executing Futures Commission Merchant): An FCM that executes trades for customers and maintains customer accounts and funds, but may clear through another FCM.
  • CFCM (Clearing Futures Commission Merchant): An FCM that is a member of a clearinghouse and can clear trades directly, either for itself or for other firms.

The multi-layered regulatory structure of the US derivatives industry offers a distributed risk model, where the FCM is responsible for the overall risk of the firm, but the DCM and DCO are responsible for the risk of the specific contract or product.

Market Definitions

• DCM (Designated Contract Market): An exchange designated by the CFTC to match trades in futures, options, or swaps that meets specified regulatory requirements.
• DCO (Derivatives Clearing Organization): A clearinghouse registered with the CFTC that enables clearing and settlement of derivatives transactions, manages counterparty risk, and ensures financial integrity of cleared markets.

Intermediary Levels

• This document is provided for informational purposes only and does not constitute legal advice. It is not intended to be used as a substitute for consultation with professional legal counsel.