Howard Lutnick, the billionaire who shook Wall Street's bond-trading club to its core, is charging onto the battlefield again, this time setting his sights on an even mightier foe: the CME Group, the undisputed emperor of interest-rate futures. With his brand-new FMX Futures Exchange, poised to launch in mid-2024, Lutnick is embarking on a David vs. Goliath mission, aiming to chip away at CME's 99% market share in a lucrative arena worth trillions.
The stakes are colossal. CME, a Chicago-based behemoth with a $73 billion market cap, has built its empire on the backs of trillions of dollars swirling through its futures contracts daily. Traders use these instruments to shield themselves from interest rate storms and gamble on the Federal Reserve's moves.
But Lutnick, a seasoned warrior with scars from the 9/11 tragedy and the Wall Street trenches, isn't fazed by the odds. He's already proven his prowess in disrupting old systems: in the 90s, he wielded eSpeed, an electronic trading platform, to topple the old guard of voice brokers in the bond market. Now, he wants to repeat the feat with futures.
His weapon of choice? "Wildly cheaper" trading costs, he declares. FMX promises to slash fees compared to CME, a siren song for both banks and high-frequency trading firms, already plugged into Lutnick's Fenics UST platform, which has snatched market share from CME-owned rivals.
But CME isn't about to surrender its crown without a fight. Its biggest advantage lies in its dual role as both marketplace and clearinghouse. Think of it as owning both the stadium and the bank handling bets - a powerful combo that discourages competitors. New exchanges struggle to convince traders to connect to a separate clearinghouse, adding complexity and cost.
Lutnick sees a flicker of hope in LCH, a global clearinghouse owned by the London Stock Exchange Group. He's struck a deal to clear FMX's trades through LCH, potentially overcoming some of CME's built-in hurdles.
Will this be enough to dethrone the King of Futures? Analysts cast skeptical glances. Previous challengers have fallen by the wayside, and CME's grip on the market seems unshakeable. But underestimate Lutnick, the comeback kid of Wall Street, at your peril. This battle royale, where "wildly cheaper" meets financial might, promises to be a gripping spectacle for years to come.
