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CME Group digs in on fee increases as brokers protest

CME Group Inc.'s CEO Phupinder Gill speaks at the Sandler O'Neill + Partners, L.P. Global Exchange and Brokerage Conference in New York June 7, 2013. REUTERS/Brendan McDermid

By Tom Polansek

CHICAGO (Reuters) - CME Group Inc (CME), the world's largest futures exchange operator, on Tuesday said it will plow ahead with plans to hike fees for traders despite an outcry from customers fuming over higher costs.

CME, which owns the Chicago Mercantile Exchange and Chicago Board of Trade, said it had been "mindful and sensitive" of its clients when determining a schedule for higher fees announced last week.

Brokers said the opposite was true.

Leslie Rosenthal, managing member of brokerage Rosenthal Collins Group, circulated a letter calling on CME to delay the fee increases and discuss them with market participants.

"The CME Group's actions in implementing these new market data fees without dialogue with market participants is insensitive, at best, and disingenuous at worst," Rosenthal said on Monday in the letter addressed to futures market participants.

Rosenthal declined to comment further on the letter, which was obtained by Reuters.

CME on November 12 said it would increase transaction fees next year for nearly all its major products, including Treasuries, energy, metals, currencies, grains and stock-index futures.

The exchange operator also said it would begin charging fees to those who distribute CME market data. The market-data fees took effect immediately for new users and can be delayed until 2015 for existing data users who qualify for a waiver.

The changes were met with disbelief by "much-beleaguered" futures traders, Rosenthal said in the letter.

"This monthly charge will apply to all market participants with access to a trading platform or a quote screen," Rosenthal said of the market-data fees. "A five-page fee matrix accompanied by three pages of footnotes describes a regime where market participants will pay monthly fees of anywhere from $5 to hundreds of dollars based on the number of exchanges and the type of access."

Traders lost confidence in the futures industry after the high-profile failures of brokerages MF Global in 2011 and Peregrine Financial Group in 2012 resulted in the loss of hundreds of millions of dollars in customer money. MF Global's commodity customers have since been paid back.

The industry also has been under pressure because of the Federal Reserve's extension of near-zero interest rates, which for years eradicated hope of a rebound in a key source of income: interest on customers' margins. While most large brokers must pass interest earned on collateral back to their customers, smaller firms were able to retain most of that revenue

CME has deferred from making substantial fee changes since 2009 "because we have been mindful to client impact during a challenging market environment," spokesman Michael Shore said.

"For market data, we spent several years standardizing policies under one market data agreement to ensure compliance and consistency across all customers," he said. "We were and are continuing to be mindful and sensitive to timing and client administrative impact in light of overall market events."

Still, CME's plan to raise fees represents "a huge increase in cost to the industry," said Roy Huckabay, a principle for brokerage Linn Group.

"Everybody is up in arms about it," he said.

(Editing by Bob Burgdorfer)