Originally published October 20, 2016 on the Maven Wave blog (www.mavenwave.com)
The FIA moved Expo from it’s usual early November date to this week and the change paid off for them in spades. The weather is extremely pleasant in Chicago right now and the climate was matched to a great degree by mood and tenor of the Expo panels. In addition to the traditional address from the Chairman of the CFTC and the Exchange Leaders panel, other panels for the day included Meet the Innovators, Applying Blockchain to Listed Derivatives Markets, and Real-World Application of New Technology.
The usual opening but with a bit more zing
Aside from brief opening remarks from FIA Chairman Walt Lukken in which he touched on the potentially destabilizing impact of Brexit, the wrongheaded regulatory changes that are contained in Basel III and MiFID II, and the unlikely occurrence that Cubs and Indians may appear in the World Series this year, CFTC Chairman Timothy Massad was once again given the honor of having the first word at the conference (1). Tellingly, he covered the same five areas that he discussed last year (2) adding only clearinghouse resiliency and recovery for new ground. Massad continues to exhibit steady and thoughtful leadership and one can only hope that he will continue on as Chairman no matter who wins the election in November. And yes, he did finish his remarks with the by now standard lament that Congress does not give the agency the funds it needs to fulfill its mission.
FIA Chairman Walk Lukken kicks off day one of Expo
The lineup for the “New Realities for Exchange Leaders” was slightly changed with Ed Tilly of CBOE and Andreas Preuss of Eurex being replaced on the panel by Bob Greifeld from Nasdaq and Jeff Tessler of Deutsche Boerse. Jerome Kemp of Citi Futures moderated as Phupinder Gill of CME and ICE’s Jeff Sprecher took up their usual spots. In many ways, it seemed that Greifeld, and even more so Tessler, weren’t quite ready for prime time as Gill and Sprecher dominated the conversation. Topics covered (and their answers) included Brexit (mixed to wait and see), European regulation (bad!), equity options consolidation (it’s complicated), direct clearing (not a threat to FCMs), SitG (more below), market data and price competition (also more below), cybersecurity (never fully a win but trending to the good guys), and more.
The two particularly interesting areas that were different this year were “Skin in the Game (SitG)” and market data and price competition. In the first case, the debate has evolved and both Sprecher and Gill have developed well-reasoned and strong defenses/explanations for their clearinghouses. SitG refers to the amount of their own capital that clearinghouses commit to the default fund waterfall and a couple of years ago, the exchanges were somewhat on their back foot as customers and FCMs demanded that more capital be committed by the exchanges (3). By this point, CME and ICE have evolved their arguments to such a point that the debate is likely to fade from prominence. The same can’t be said for regarding market data and fees and this subject produced the most pointed and direct confrontation on the panel. Specifically, Greifeld was describing the success of Nasdaq’s energy futures under NFX when Sprecher challenged him. To paraphrase their rat-a-tat back-and-forth:
- Sprecher: I’ll take my market footprint over yours
- Greifeld: Our success is due to your data costs being too high
- Sprecher: You’re free riding on the true market
- Greifeld: Interest in our product went up when you raised your data fees
- Sprecher: Data is the fastest growing revenue stream at ICE
- Greifeld: You paid a lot for it (with ICE’s acquisition of IDC)
- Sprecher: To your credit you’re doing it by competing rather than complaining to regulators to get into a market
- Greifeld: I’m glad we can make your life more interesting
- Sprecher: It’s not that interesting
Everyone in the room woke up with that exchange.
Innovation takes center stage
In 2015, FIA added an Innovation Pavillion to the exhibit hall floor and this year it’s back and it’s better than ever. The number of companies selected was expanded from 10 to 18 this year and a “Shark Tank”-like competition was added as a panel called “Meet the Innovators”. In this session 5 finalists were selected from the 18 and each gave a five minute presentation that was followed by an eight minute Q&A from a panel of 6 judges. In a nutshell, here are the 5 companies and what they do:
- Semantic Evolution: Extracting, normalizing, and applying business rules to unstructured data from financial documents of all kinds.
- ChartIQ: Charting and data visualization solutions for capital markets, built in 100% pure HTML5.
- Money.net: World’s first all asset class financial workstation at a utility price. Institutional grade terminal for all your news, research, and excel needs
- Ubixi: Ubixi is a cloud-based on-demand platform that provides clearing, settlement, and back-office solutions for the financial industry.
- Cloud9: Secure, compliant cloud communication for the financial markets.
All of the firms did an excellent job in their presentations and both Money.net and Cloud9 had a bit of a leg up due to big news announcements in the past week: Money.net announced that they are hiring former Bloomberg executive Norman Pearlstine to lead their effort to build a news organization (4) and Cloud9 secured $30 million in a capital raise (5). While the winners of the competition won’t be announced until midday on Thursday, I’ll go out on a limb and predict that Money.net will win based upon their simple and compelling value prop: we are a “Bloomberg killer” that is built on new technology and can charge $2k for what costs $25k from Bloomberg. Stay tuned for the next blog post to see if I’m correct or not.
The home stretch: blockchain and new technologies panels
The final two panels of the day were “Applying Blockchain to Listed Derivatives Markets” and “Real World Application of New Technology”. The former is de rigeur these days and the latter had the best moderator of the whole day. Blockchain is as ubiquitous in 2016 as cloud was in 2012 and dot-com in 1999, so no conference is complete without a panel on the topic. In this case, Ray Kahn moderated as Arjun Jayaram from Ubixi, CME Ventures’ Rumi Morales, Brad Peterson of Nasdaq, and Nick Solinger from FIA Tech shared their insights. Some tidbits included:
- Jayaram made a compelling case for how Ubixi is deploying blockchain concepts to break down existing silos of data, allowing them to move assets with greater precision and lower cost.
- Morales observed that adoption has been greater outside of the U.S. and Europe and called special attention to the bold moves that ASX has made with Digital Asset Holdings.
- Solinger pointed out that the rate of adoption will be determined by the impetus for change with a timeline of 1–2 years if it’s driven by regulation, and up to 5 years if it’s simply a matter of gaining greater efficiency.
- Peterson thinks that financial services is close to a tipping point for broadly adopting cloud and that this development coupled with blockchain is bad news for database companies.
And, finally, the last panel of the day featured a dynamite moderator: me. This was my first time as a moderator at Expo and one consequence of my appearance is that I couldn’t take notes and therefore, I can’t give an accurate recap of what was discussed. Topics touched on in the New Technology panel included voice technologies (Green Key), low latency private cloud (Beeks), hybrid solutions (OptionsCity), proprietary trading perspectives (XR Trading) and the latest research on technology trends (Tabb Group). My thanks to Anthony Tassone, Victor Hendrix, Hazem Dawani, Tom Lehrkinder, and Peter Vaisvil for making me look good on the panel.
Final day: let them eat steak!
Thursday is the final day for Expo and my recap of the panels along with some overall observations and ideas will hit your inbox over the weekend. If you happen to be in Chicago on Thursday, I encourage you to attend the annual fundraiser that coincides with Expo: The Great Chicago Steak Out. This event has raised over $3 million for The Greater Chicago Food Depository since it began in 2008, which translates into over 8.7 million meals for those in need. At the Steak Out, some of Chicago’s top restaurants serve tastings of exquisite dishes and the event is a great networking opportunity. You can purchase tickets online. I hope to see you there!
(1) You can find Chairman Massad’s full remarks on the CFTC website.
(2) 1) margin requirements for uncleared swaps, 2) automated trading, 3) cybersecurity, 4) swap execution facility trading, and 5) data reporting
(3) See the Maven Wave Expo report from Day One in 2014 for a recap of the SitG smack down between JP Morgan and CME in 2014.