Consortium backs BGC’s effort to challenge CME

A consortium of 10 banks and market-making firms is investing $172 million in BGC’s electronic trading and exchange business, called FMX.

The deal, which gives FMX an implied valuation of $667 million, underscores BGC’s ambitions to challenge CME Group’s dominance in the US Treasury cash and futures markets.

The consortium—which consists of Bank of America, Barclays, Citadel Securities, Citi, Goldman Sachs, JP Morgan, Jump Trading, Morgan Stanley, Tower Research Capital and Wells Fargo—will have a 26% stake in FMX.

“We have brought together ten of the most important global investment banks and market making firms to create a premier trading venue for the interest rate markets,” Howard Lutnick, chairman and chief executive officer of BGC Group and chairman of FMX, said in a statement announcing the deal.

Risk.net, WatersTechnology’s sibling publication, first reported BGC’s plans to form a consortium to take on CME on March 27.

BGC’s FMX unit will house the firm’s over-the-counter trading venues for cash Treasuries and spot FX—FMX UST and FMX Foreign Exchange—alongside the soon-to-be-launched FMX Futures exchange. 

The company’s FX options trading platform, Fenics Direct, will not be rolled into FMX and will continue to be fully-owned by BGC. 

FMX UST—which competes directly with CME’s BrokerTec—has grown its market share to 28% since launching in 2018. Daily volume on the platform averaged $38 billion in 2023.

BGC’s spot FX platform has also seen rapid growth, with volumes increasing 63% in the past four years.

The company is now gearing up to launch an interest rate futures exchange to sit alongside its cash US Treasury platform. FMX Futures received approval from the Commodity Futures Trading Commission on January 22 and is expected to open for business in September.

“With support from these leading financial firms, we believe FMX will become a rapidly growing futures platform and create important efficiencies for our shared clients,” said Lou Scotto, CEO of FMX.

FMX Futures is expected to launch with SOFR and US Treasury futures. The contracts will be cleared by LCH, potentially creating new cross-margining opportunities for traders. “With our clearing partner, LCH, the largest clearer of interest rate swaps in the world, clients will receive significant portfolio-margining capabilities, creating competitive advantages across US interest rate markets,” Scotto added.

LCH’s CEO Isabelle Girolami, also said in a statement that FMX will deliver “margin savings” for customers. 

Still, BGC faces a steep challenge competing against CME, which has long-dominated trading in listed interest rate derivatives. Average daily volume in CME’s US Treasury futures and options hit an all-time high of 7.8 million contracts in the first quarter, while quarterly revenue increased 30% year-over-year to $1.5 billion.

Senior executives at the firms backing FMX emphasized the need for a credible competitor to CME in rates and FX trading. Goeff Weber, head of G10 rates flow trading at Citi, described FMX as “a potential catalyst for increased competition, particularly within the futures market”, while Kristen Macleod, head of Americas macro distribution and co-head of global FX distribution at Barclays, said, “FMX is going to drive innovation and competition across the rates, FX and futures markets.”