Billionaire Howard Lutnick to launch interest rate futures exchange

Billionaire Howard Lutnick, chief executive of US financial services firm Cantor Fitzgerald, is launching a new exchange for trading futures contracts linked to US interest rates, according to The Wall Street Journal (WSJ).

The FMX Futures Exchange, due to launch in mid-2024, will list futures contracts linked to US bond yields and the Secured Overnight Financing Rate (SOFR).

Currently, the majority of interest rate futures contracts, or approximately 99% of the volume of transactions, take place at the Chicago Mercantile Exchange, according to data from the Futures Industry Association (FIA) cited by the WSJ. The Chicago Mercantile Exchange is the most valuable stock market operator in the world, with a market capitalization of 73 billion dollars. That means Lutnick's business would face serious competition from the world's largest derivatives market. FMX contracts would thus compete with trillions of dollars worth of interest rate futures traded on the CME every day.

But, Lutnick believes that the new exchange will have an advantage over CME, namely the lower cost per transaction. Interest rate futures work like any other futures contract, allowing traders to bet on the direction of interest rates for any asset, from ten-year US Treasuries to credit benchmarks such as SOFR, and even at Fed interest.

In this area there have been efforts to rival the CME through interest rate futures markets - such as NYSE Euronext and ELX Futures - but the Chicago Stock Exchange still leads the way. An effort in this direction was supported by Lutnick himself in 2013, when the billionaire launched Fenics UST, a trading platform for government bonds.

According to Business Insider, the Commodity Futures Trading Commission (CFTC) approved FMX's request to launch a new trading platform on January 22.

"With this CFTC approval, we will combine our main Fenics UST platform with the FMX Futures Exchange market, making CME competition in the US interest rate futures market," Lutnick said, concluding: "For the first time, the world's most valuable futures market will have real competition".