FMX - Investor Day 2026 - BGC GROUP INC

Financial Performance:

• FMX (BGC Group) revenue grew at a 36% CAGR over the last three years, reaching $122 million in 2026 from $48 million in 2023; cash treasury platforms drive the majority of this growth.
• FX revenue doubled from $6 million to $12 million (100% growth), while market data revenue represents approximately 6% of total revenue (vs. 13% for CME), indicating significant upside potential.
• Operating leverage is strong: operating losses narrowed from $29 million in 2023 to $18 million in 2026 as the futures platform launch occurred within the current cost base.
• Front-office compensation ratios have decreased from the high 60s to under 40% as revenue scales; technology costs remain stable at ~$33 million annually despite product expansion.
• Future revenue projections suggest revenues could exceed $300 million within three years with an incremental margin of at least 50%.
• FMX requires no additional capital raising; the $18 million pre-tax operating loss is manageable within BGC's $3.4 billion annual revenue.

Guidance and Future Outlook:

• Management expects "exponential growth" in Year 3 (starting Oct 2025 for SOFR futures and May 2025 for Treasury futures) driven by completed client connectivity and cross-margining benefits.
• Strategy focuses on three key drivers: finalizing API/algorithmic connectivity for institutional buyers, launching cross-margining with LCH, and increasing market share through protocol innovation.
• Revenue growth will be fueled by moving from fixed-fee "all-you-can-eat" models to fee-per-million models and expanding market data subscriptions.
• Future product roadmap includes basis trading protocols, inter-dealer electronic swaps, and potentially tokenization of liquid cash collateral (treasuries) to enhance collateral mobility.
• Management anticipates market volatility driven by political uncertainty will continue to support trading volumes.
• Strategic equity partners (10 largest banks/liquidity firms) provide a foundation for future buy-side adoption, with potential for additional strategic investment from asset managers (e.g., BlackRock, T. Rowe) to accelerate onboarding.

Business Segments and Product Lines:

• Cash Treasuries (Fenix/UST): Dominates at 42% of the cloud market with $84 billion daily volume (up 35% YoY); serves as the primary cash flow driver and proof of concept for the exchange model.
• FX Platform: One of the fastest-growing FX venues, tripling to $19 billion daily since equity partners joined; expanded to include NDFs and inflation bonds.
• Rates Futures: Launched SOFR in Sept 2024, 2- and 5-year Treasuries in May 2025, with full curve launch projected for Aug 2026; daily volume reached 162,000 contracts (record) in Oct 2025.
• Repo: Rolling out overnight repo and expanding into term repo, leveraging BGC's infrastructure for the first electronification of term repo.
• Clearing Partnerships: Exclusive partnership with LCH (ICE) enables portfolio margining benefits, combining FMX futures with LCH SwapClear; cross-margining is expected to be fully operational for clients by Q1 2026.
• Technology: Utilizes "curated liquidity" and counterparty blocking (P-Club) to reduce toxicity; offers deterministic execution paths and tighter tick sizes than competitors.

Market and Competitive Landscape:

• FMX aims to break the near-monopoly of CME in US Interest Rate Futures and reduce reliance on single-venue trading in Treasuries, a market with limited choice compared to FX or Equities.
• Competitors include CME, Bloomberg Tradebook, and Brokatech; FMX differentiates via tighter tick sizes, cross-margining with LCH, and a consortium of owner-traders.
• FMX achieved 82% frequency of equal or better bid-offer pricing in SOFR futures and 68% in Treasury futures against CME, up significantly from 18% in Q2 2025.
• The exchange has onboarded 12 FCMs, securing nearly 80% of cleared swap balances available for FMX.
• Management notes that market structure innovation (protocol changes) is driving volume growth, challenging the "stale" dynamics of incumbents.

Risks and Challenges:

• Adoption Bottlenecks: Reliance on buy-side firms (hedge funds, asset managers) requiring complex OMS (Aladdin) integration; institutional onboarding timelines are longer than high-frequency traders.
• Regulatory Uncertainty: New products like prediction markets, perpetual futures, and tokenization face evolving CFTC/SEC frameworks and potential jurisdictional friction.
• Network Effects: Overcoming the incumbent's 40-year habit and network effects in interest rate futures requires significant liquidity concentration to trigger a "tipping point" for adoption.
• Technology Dependency: Success hinges on completing API connectivity for institutional algorithms; delays in FCM or client technology deployment could stall growth.
• Competition Response: Incumbents may mimic innovations (e.g., tighter ticks) or leverage existing scale to resist share loss.

Management Commentary and Tone:

• Tone is highly confident and assertive; John Abulrars (CEO) and Lou Scotto (FMX CEO) emphasize that FMX was "built by the market for the market" and that the consortium model is a decisive advantage.
• Management views the current phase as a pivot point from "explaining potential" to "executing connectivity and volume."
• Strong emphasis on the "Field of Dreams" philosophy: building superior technology and economics will inevitably drive client adoption.
• Executive team expresses optimism about the LCH partnership as the key catalyst for institutional buy-side participation.
• Confident that the current operating leverage will continue to expand margins, projecting 50% incremental margins in the near term.

Analyst Questions and Answers:

• Buy-Side Onboarding: Management expects 40 clients trading, with an additional 15-20 buy-side firms (mostly hedge funds) expected to come online by mid-2026; asset managers follow with a 6-12 month lag due to OMS integration.
• Margin Benefits: LCH portfolio margining is projected to offer 50-80% margin savings for correlated portfolios (swaps vs. futures); 70% of FCMs expected to be ready to offer this benefit by Q1 2026.
• Strategic Equity: While 10 partners are sufficient, there is high interest from asset managers (e.g., BlackRock) to become strategic investors to drive deeper buy-side adoption.
• Pricing Strategy: FMX plans to increase revenue by moving from fixed-fee models to fee-per-million and raising fixed fees in 2027+, noting they are currently underpriced vs. peers like BrokerTech.
• Counterparty Blocking: Clarified that while counterparty blocking works in cash, futures face regulatory constraints; FMX is engaging with CFTC to propose protocol innovations (e.g., segmented flow) that may become viable for futures.
• Capital Needs: Confirmed no need for additional equity capital; the business is self-funding via BGC's strong balance sheet and current cash flow generation.

Other Key Points:

• Founder's Vision: The FMX initiative was inspired by a 2019 incident where the sole pricing engine went down, highlighting the market's vulnerability to single-venue failure.
• Keynote Speaker: The event concluded with a discussion with Professor Geoffrey Hinton (Nobel Prize in Physics 2024), who discussed AI risks, the potential for job displacement in intellectual labor, and the need for AI to be aligned with human welfare.
• Regulatory Outlook: Panelists from CFTC/SEC emphasized a shift toward promoting competition and innovation onshore, with increased willingness to approve new products (e.g., base metals, prediction markets) compared to previous administrations.
• Technology Evolution: Emphasis on the shift from hand-crafted features to end-to-end neural net training, and the role of GPUs in accelerating AI capabilities.
• Future Products: Discussion highlighted the potential for "invoice spreads" and "T-spreads" as package trading opportunities once futures and cash are fully integrated.