(Bloomberg) — An exchange founded by Commerce Secretary Howard Lutnick is set to start the long-awaited trading of US Treasury futures next week in a blow to CME Group Inc., which dominates that market.
FMX Futures Exchange will launch its US Treasury futures as soon as Monday, according to people familiar with the matter, who asked not to be named discussing private matters. Futures brokers spent Friday testing trades on the exchange, one of the people said. Trading in the contract was intended to start in late March, but there were delays because of operational issues with clearing and tariff-induced volatility. Lutnick spun FMX out of inter-dealer broking giant BGC Group Inc. in April last year.
The move comes after CME pulled out the stops to thwart the launch of the rival contract, citing risks of FMX clearing with London-based LCH Ltd, part of London Stock Exchange Group PLC. CME Chief Executive Officer Terry Duffy brought his concerns to everyone from former Treasury Secretary Janet Yellen to the heads of America’s major financial regulators.
“We are delighted to be working in close partnership with FMX to bring greater competition and innovation to the trading and clearing of US Treasury Futures,” a spokesperson for LCH told Bloomberg.
Deliberations are ongoing and details of the launch could change, the people said. FMX and BGC Group declined to comment.
Last year, FMX began trading three-month futures on the Secured Overnight Financing Rate. The contracts have an open interest of over 10,000, according to data from Bloomberg. FMX already competes with CME as a venue for trading currencies and US Treasuries.
Treasury futures are integral part of the US Treasury basis trade, which hedge funds use to arbitrage price differences between the value of Treasuries and their derivatives.
Lutnick’s BGC Group created FMX in 2018 and spun it out last year with equity capital from a consortium of banks and proprietary trading firms. Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. invested in FMX, giving the business a valuation of $667 million.
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