An analysis of the market for futures commission merchant services.
Item
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Title
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An analysis of the market for futures commission merchant services.
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Identifier
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AAI9315509
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identifier
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9315509
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Creator
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Torz, Richard J.
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Contributor
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Adviser: Ronald W. Anderson
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Date
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1993
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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Futures commission merchants (FCMs) are integral members of the futures industry in that they typically act as agents for customers in futures markets through the provision of brokerage services. As compensation for this activity, FCMs charge competitively-determined commissions per round turn per contract to their clients. Hence, their primary function is to behave as brokers for outside futures traders.;Sometimes, FCMs engage in proprietary trading; in other words, they act as principals and trade for their own accounts. In this instance, FCMs act as dealers and attempt to earn income from profitable speculative trading. This practice is often referred to as dual trading.;However, the major dealers in futures markets are not FCMs but rather floor traders, or market-makers. They tend to trade by attempting to turn over their open positions as quickly as possible, usually within a few minutes, and hopefully profit from the successful anticipation of futures price movements. Hence, they are often referred to as scalpers and provide both liquidity and immediacy in futures trading while earning income by trading the bid-ask spread in futures markets.;This study is an attempt to provide a framework for a beginning analysis on the microstructure of the market for FCM services. In particular, it examines questions dealing with the determination of commissions charged by FCMs in futures trading, factors which may signal the potential existence of a trade-off between commissions and bid-ask spreads in futures markets, and the effects of FCM behavior on liquidity and the costs of transacting in futures trading. A simple model of transactions costs in futures markets is developed which attempts to both theoretically and empirically analyze all of the above issues while taking into account the effects of demand shifts, risk differentials, and margins. Several hypotheses are postulated with regards to these issues. The statistical results derived from the estimation of the model developed generally tend to support these hypotheses.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
