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I have met with colleagues on the buy side and the sell side of the commodities futures clearing business recently. We know that the cost to the banks/clearing brokers of clearing commodities in particular has been driven up by the new capital adequacy rules. See this June article from Tabb Group on the resulting exit of FCMs from the market.

From my conversations with both sides it is clear and logical that for those FCMs not existing, an attempt to pass the cost on to the client (smaller ones so far) is being made. High clearing fees and innovative new charges seek to make smaller customers rentable for the broker, or to drive them away entirely.

I wondered, if as these end-users feel the pain of paying higher clearing fees as Non-Financial Counterparties, will they be less averse to becoming Financial Counterparties under MiFID2? I haven’t done the maths but I hear psychologists say pleasure can be experienced as the relief of pain…….

If these customers were FCs instead of NFCs, it would indeed be less capital intensive for the brokers to deal with them, thus cheaper.  Of course the cost of extra capital would offset the benefit for the customer, so limited if any benefit over all, and anyway the small guys probably won’t be caught by the MiFID2 thresholds, because they are hedging not speculating, … or would be if they could afford to!

I suspect there is only pain.