Originally published October 23, 2017 on the Maven Wave blog (www.mavenwave.com)
The second day of FIA Expo followed expected form with the exchange leaders, top regulators, and other luminaries replaced by the regular folks that make the industry tick. The addition of the Innovation of the Year award has brought some drama to day two and this year also witnessed a rare SRO audience for a panel along with some interesting discussions from CCP leaders, a horror show view of the nightmare that is MiFID II, and a look into the world of crowdsourced algo quants.
Standing Room Only to Start the Day
Having skipped opening comments from Craig Phillips of the Treasury Department (there’s only so much regulator-speak that I can take), the day began with the Cryptocurrencies & ETD panel which, not surprisingly, commanded a rare, standing room only crowd. Don Wilson of DRW moderated the panel which included Mike Belshe of BitGo, Bobby Cho from Cumberland Mining (a DRW company), LedgerX’s Juthica Chou, Michael Mollett from CBOE, and Adam White of Coinbase/GDAX.
Wilson jumped on the crypto bandwagon early and DRW’s Cumberland Mining is billed as the largest market maker in cryptocurrencies in the world. Wilson is not a cheerleader, however, and he had probing questions for a number of the panelists, not the least of which was Mollett about the CBOE’s proposed cryptocurrency futures contract. In particular, Wilson questioned the methodology whereby a long futures holder can enter into the auction in order to convert from futures to cash because this may influence the very price that the long holder is converting to. Mollett had well reasoned and convincing answers to Wilson’s concerns but only time will tell if the CBOE has the answer for a crypto future. Chou was necessarily but unfortunately evasive when pressed on details of LedgerX’ SEF based swaps and options on swaps market, including whether or not they have launched yet, while Cho described increasingly robust demand from institutional capital of late and a market that is maturing rapidly but still has a long way to go.
While CBOE and LedgerX represent what is to come, White and Coinbase/GDAX are the exciting and dynamic present for cryptocurrencies. They currently offer bitcoin, ether, and litecoin in both retail and institutional formats with a reported 30k — 50k new users per day. Big numbers indeed. Finally, Belshe was the most articulate champion for cryptocurrencies, describing how bitcoin has taught all of us that crypto value is backed by people and that we don’t have to settle for money that is green. His company is teaming with CME Group and The Royal Mint to offer a blockchain based gold contract, which has more than a touch of irony as blockchains and cryptocurrencies will likely take some of the shine off gold as a store of value. Taken together, these market participants and visionaries gave substance to a subject that has captured everyone’s attention this year and one that will likely transform the world in ways that we can only begin to imagine. The contrast with discussions from 2016 was like night and day as pie-in-the-sky has given way to more real, concrete action. 2018 should be orders of magnitude further along than 2017.
After cryptocurrencies, the most colorful thing about the CCP Leaders panel was CME Group Sunil Cutinho’s clothes as he wore a traditional outfit in celebration of Diwali. Jan Bart de Boer from ABN Amro interviewed a panel that included Cutinho, Michael Davie from LCH, Eric Mueller of Eurex, Hester Serafini from ICE Clear US, and OCC’s Scot Warren. If anything, the panel’s comments made me realize how much I had glossed over the comments and criticisms about regulation that came from the Exchange Leaders panel the day before. Warren cited a clear cut example where strike notional margin that does not consider option deltas creates a negative incentive for market makers and is harming markets. Cutinho pointed out that the original principles of regulation that came out of the financial crisis have been reversed or subverted by subsequent onerous regulation while Serafini commented that proscriptive changes may break a model that has always worked and one that the regulators are trying to encourage. Mueller, for his part, was somewhat heartened by the content and conversation that arose out of the risk session hosted by the Chicago Fed just prior to FIA Expo and Davie compared the looming MiFID II and Brexit events to Y2K: it’s ugly, it will take a lot of work, but the markets will get through it. De Boer was none too happy about that as he jokingly recalled sleeping in the office for Y2K — and he isn’t going to go through that again!
Welcome to the Nightmare: MiFID II
The CCP panel was a walk in the park when compared to the issue of MiFID II. Greg Wood from FIA welcomed Andrew Gibbins of Trading Technologies, Jennifer Han from the MFA, Jasper Jorritsma of the Netherlands Authority for the Financial Markets, Geneva Trading’s Jeff Ramsey, Vassiliki Veliou from Eurex, and Matthew VosBurgh of Barclays as they visited some of the countless Alice In Wonderland contradictions and outright surrealistic nightmares that are MiFID II. The changes required are so large and at times nonsensical that it is hard to imagine that the beginning of the regime on January 3, less than 80 days away, will not have a negative impact on markets. Personally, I have no skin in the game and I generally like to study things and figure them out but MiFID II has me throwing my hands up and walking away. Wood commented that he originally looked at MiFID II as a voyage of discovery but has come to change his mind because explorers look for and find answers along their journey but all MiFID II does is generate more questions. Coming several years after the US enacted Dodd Frank, one would have hoped that the Europeans would have made improvements in post financial crisis regulation but just the opposite is true. Couple this with the fact that US regulators are moving on to amend or reverse some portions of Dodd Frank and the very real sceptre of regulatory arbitrage looms over the market. Not good.
The final panel of the day returned back to the topics of growth and possibility as Joe Signorelli of RCM Risk Advisors lead Jared Broad of QuantConnect, Martin Froehler from Quantiacs, Citigroup’s Andrew Keane, and Morgan Slade of CloudQuant in a discussion on Open Source Meets Quant Trading. As their names imply, QuantConnect, Quantiacs, and CloudQuant all have tapped the power of the cloud and open source software to bring quantitative tools and methods to a mass audience. While their models are slightly different (QuantConnect is the most democratic and each has relative strengths in specific markets, segments, or styles), they all embody a new era of trading that is quantitative in nature and distributed equally to all parts of the world. The impact is only beginning to be felt and promises to grow in importance in the coming years.
The Envelope Please…..
And what of the Innovator of the Year? Last year’s winner, Morgan Downey of Money.net, led off and attested that the award had a very helpful impact on their business as they now have over 60,000 subscribers. From there it was time to reveal the winner and for the second year in a row I was able to predict the outcome as TellusLabs grabbed the honors. Tellus is using satellite data in a way that directly addresses the need for better information in the battle for food security and they possess the twin distinction of having shown that their solution actually works and a plan and vision to make an impact on the whole world. Congratulations to TellusLabs.
Odds and Ends
A few items that didn’t quite fit into the article:
- The quality of firms in the Innovation Pavilion was up again this year with a clear interest in machine learning and AI. The following firms consistently had the most traffic at their booths when I stopped by, an indication to me that they have the most to offer:
- Theorem Technologies
- The 800 pound gorilla at the conference is the buzz on the street that CME Group wants to sell to/merge with ICE. Even if that isn’t the deal on the table, the perception is that CME is cleaning house in preparation for a big M&A deal.
- As in years past, the Hilton did not disappoint with their pastries and sweets. Day one featured nutella beignets but the highlight for me were red velvet cheesecake squares on day two. They made getting through the MiFID II panel possible for me!
- For the second year in a row, WILD hosted a Women in Fintech panel, this time featuring Leslie Sutphen of Financial Markets Consulting in discussion with Joanna Davies from Traiana, Seismic Foundries Cathy Lyall, Rumi Morales from Rumi Ventures, Adrienne Muir of Voxsmart, and Jennifer Peve of DTCC. Individually and collectively these women boast impressive resumes of achievement and their stories of how they managed personal growth and success are helpful to anyone, not just women. Unfortunately, women are underrepresented in both technology and financial markets so panels like this will continue to be necessary but one can hope that one day there will be no distinction between success for women and men. In the meantime, the fight continues!
At the end of the day, FIA Expo highlighted an industry that has both experienced consistent growth and innovation in the difficult years since the financial crisis and has many positive signs pointing toward the future. Let’s see how things look when we next check in with FIA at Boca Raton in March.
Thanks for reading and, as always, please let me know if you have any questions or comments.