Introducing Brokers: Gateway to FCMs

Terry Flanagan

An introducing broker plays a vital intermediary role in futures and commodities trading. IBs have agreements with one or more Futures Commission Merchants that allow clients to open accounts with multiple FCMs. In return for introducing the client business to the FCM, the commission revenue paid by the client to the FCM is shared with the IB.

An IB acts as an overlay between the FCM and its clients. Every account that is opened through an IB is opened using the FCM’s standard Account Agreements and the account is maintained directly by the FCM.

“What that basically means is that we act in the middle between a broker and the customer, so we do not directly from a commercial standpoint face our clients,” said Paul Geiger, chief information officer at Thales Technology Solutions. “The clients still have a direct relationship and a direct brokerage account with the FCM, but what we do is we provide a level of service. We are the face of the relationship.”

Geiger views the role of introducing broker as enabling clients to plug into multiple FCMs. “We have our own technology suite and own our own services that might supplement or complement what the traditional brokers can do,” he said.

Account on-boarding is a critical business process for an IB. When an account is opened under an IB arrangement, it dictates that the clearing and execution revenues collected by the FCM will be shared with the IB. Each FCM will have an IB Agreement in place with the IB that dictates the details of the revenue share and other terms of the IB relationship.

“A very important component of our technology is on-board speed and on-board time,” said Geiger. “We’re able to allow our clients to be close to our technology and get up and running very quickly without weeks or months of setup or having to contact programmers and teams.”

Introducing broker is a term that can mean a lot of different things to a lot of different people. “We think that our business model within the IB sphere is somewhat revolutionary in that we’re able to really provide an elevated level of service,” Geiger said. “We’re really raising the bar and creating an interesting model that is going to be followed.”

Thales, which has invested heavily in technology since its creation in 2012, has entered into a multi-year agreement with Jefferies, by which Thales will equip Jefferies with an advanced web-based application to support its client base in futures, options, and foreign exchange.

“I would definitely say that moving into 2015, that we are becoming a technology company and having this partnership with Jefferies is an important step in that,” Geiger said. “It solidifies the fact that we are in many ways now a technology provider firm that enters into that type of business activity.”

Related articles

  1. The blockchain-based platform is the first to connect metals and cash settlement networks.

  2. Morgan Stanley completed the acquisition of E*TRADE in 2020.

  3. Blackstone committed $400m to lead a strategic investment in Xpansiv in July.

  4. LME Looks to Chinese Growth

    The Managed Funds Association said LME has undermined confidence in its ability to oversee markets.

  5. CME Expands Metals Suite

    Lawsuits have been filed against the LME’s decision.