Thinking about CME/IOM membership

H

heech

Hi all,

Just for those who don't know, I'm from way outside the industry... didn't trade my first futures contract until 2 years ago. So, I'd appreciate input from those with greater experience.

I'm contemplating exchange membership for my commodity pool. I'm trying to work through the numbers and rules. I trade substantially across CME/CBOT/NYMEX, but looking through the rules...

- NYMEX requires equity membership, doesn't have trading membership... I'm not putting up a million for this, so that's out.

- CBOT 106.S trading membership might be an option, but I'd have to buy both a B1 and B2 membership (leasing not an option). This would cost me ~$350k. I do about 700 RT/month in CBOT right now, so I'd save about $1400/month in clearing + execution fees. I might wait on this.

- CME membership is the easy one. Trading membership for the fund only requires that I purchase 1, or lease two membership in the division I want... IOM.

IOM membership is going for approximately $150k right now. I trade approximately 900-1000 RT/month here as well, so I see that as a $1200/month savings. That seems like a pretty reasonable investment to me. I have plenty of capital sitting around... and there's no risk involved, right? No regular expenses? I can always sell out at whatever market price will be a few years down the road.

Am I thinking about this the right way? Are there any other considerations I should be aware of? Any reason I wouldn't be approved for membership? I'm a one man shop, and no spots on my record.

And as long as I'm doing this, why shouldn't I just file for floor broker status...? As far as I can tell, no other financial requirement involved. I don't know if I'd ever actually do any trades (although commissions are much lower)... but if nothing else, I want the cool badge... I'd be kind of a tourist.
 
And let me also ask a question about ICE membership too... I asked ICE directly about this a year or so ago, and they basically said no one is buying ICE memberships any more. It's meaningless.

But it looks to me like... perhaps I can still lease a license from an old NYBOT member, and take advantage of significant discounts? I'm doing 600-800/RT month in ICE softs. I save $1.80/RT by being a leasee, or $1200/month. Leases are going for $500 (maybe?)

Anyone know if that's right? ICE website is not especially informative.
 
I understand you are running a hedge fund. It's quite an impressive feat without long industry experience.

One thing you might want to check is if you are allowed to pay for leasing the membership from the fund as opposed to from your management fees. If you are not allowed, cost-benefit analysis will be completely different unless it's you who owns most of the money in the fund.
 
Good point. I'm actually still about 75% of assets, so paying out of pocket (thru management company) isn't a bad idea... That's the model I was assuming. I'll have to check with my accounting/legal team about having the fund pick that up instead.
 
Curious, does anyone know whether the CME Audit Committee actually rejects corporate applications? From the membership form:

"CME staff will consider the applicant’s business reputation, financial resources and member firm trading activity in approving the applicant. CME reserves the right to reject any applicant and the decision of CME staff will be final."

Just wondering if that's a formality, or whether this is some kind of exclusive social club...
 
Quote from heech:

Curious, does anyone know whether the CME Audit Committee actually rejects corporate applications? From the membership form:

"CME staff will consider the applicant’s business reputation, financial resources and member firm trading activity in approving the applicant. CME reserves the right to reject any applicant and the decision of CME staff will be final."

Just wondering if that's a formality, or whether this is some kind of exclusive social club...
More...

They're concerned about shady shell corps. You shouldn't have any problems.
 
Quote from heech:
----CME Audit Committee actually rejects corporate applications?
----CME staff will consider the applicant’s....
----CME reserves the right to....
----CME decision will be final.
----a formality....
----some kind of exclusive social club...
More...
1) They want to grant membership to "good" people, not those who have felony arrests for financial crimes. If your background is "clean" indeed, it's not something to be overly concerned about.
2) The exchanges also need to have "fresh blood" coming in to replace those members who are leaving. This was a bigger sentiment when open-outcry trading dominated. :cool:
 
I'm moving forward with the CME/IOM membership application... I'm just glad society has given me a chance to redeem myself after those fraud convictions a few years back (kidding, kidding).

I'm still looking at CBOT. The "hedge fund" requirements are pretty steep... I have to own a B-1 ($280k) and B-2 ($80k) membership, and then lease another B-2 membership.

Question: why the heck don't I just get membership as an individual, execute for the fund... and then just give-up the trades to the fund?

- Individual (leased) membership execution fees are $0.29/side for CBOT Ag futures. And then as far as I know, there's a CME give-up surcharge of $0.05/side.

- Non-member execution fees is $1.75/side... so that's a $1.40/side difference right there!

EDIT: CBOT fee schedule here:

http://www.cmegroup.com/company/files/Ags_New.pdf
 
Quote from CPTrader:

If you executed as an individual and then gave up trades to the fund, would that be considered a confict of interest?
More...
It's a question for the lawyers but I doubt it will be a serious issue... as long as Heech keeps proper records and doesn't trade for himself at the same time as the fund.

However, that will be considered cheating on the exchange fees. Think about brokers. Many of them are exchange mebers and execute client trades in their own (broker's) name. However, only clients who are exchange members themselves receive discounted fees. Why? Because these are based not on who executes a trade but on who has the beneficial interest.
 
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