A Futures Commission Merchant (FCM) is an individual or firm that buys or sells futures contracts, commodity options, retail off-exchange foreign currency contracts or swaps on the behalf of customers. FCMs may solicit or accept customer orders for futures contracts either for payment of cash or other assets or on credit. They act as liaisons between commodity buyers and sellers.
As mandated by the Commodity Exchange Act, all U.S.-based FCMs who buy and sell commodities for customers in the U.S. must register with the federal Commodity Futures Trading Commission (CFTC) unless they conduct business only on behalf of themselves, their firm or their firm’s affiliates, officers or directors. Every FCM who is registered with the CFTC must also register with the National Futures Association (NFA). In addition, FCMs may register as members of various commodity exchanges.
FCMs are required to regularly report certain information to the CFTC, the NFA and the other self-regulatory organizations to which they belong. FCMs must submit unaudited monthly financial reports as well as annual reports that have been certified by an independent auditor to the CFTC and the NFA. The NFA further requires that FCMs complete an information-gathering questionnaire at the time of application for membership and before each annual renewal. The NFA may also request other documentation from FCMs, including asset lists, customer transaction records, disaster recovery plans, bank statements and proof of promotional material compliance.
FCMs must also provide certain documentation to customers. Before opening a new customer account, FCMs are required to obtain each customer’s signature on a form that outlines the risks associated with futures trading, and, if applicable, information regarding trading in foreign markets. Customers must authorize each transaction an FCM makes on their behalf, and FCMs are required to provide customers with confirmation of all transactions and monthly statements that detail all transactions, related debits and credits and the account balance.