Let’s face it: most conferences end up like last week’s birthday balloon on their final day but that was most certainly not the case for the second and ultimate day of FIA Expo. With a lineup that featured a sandwich of old and new market visionaries, a look at the new realities of retail, a thrilling conclusion to the Innovators Pavilion competition and what was likely the best attended final panel at possibly any industry conference ever, FIA Expo did not disappoint. Here are my observations along with a few random thoughts to sum it all up.
A Tale of Two Visionaries
The day began with a keynote conversation with Sam Bankman-Fried of FTX and later featured another with industry pioneer Leo Melamed, both led by FIA Chairman and President Walt Lukken. Both men are financial visionaries of the highest order but when it gets right down to it there are more differences than similarities between the two.
One cannot argue with the seemingly instant success that Bankman-Fried has generated. He embraced crypto beginning in 2017 with the creation of Alameda Research and launched the crypto exchange FTX in 2019, maneuvers that garnered him the number 32 spot on the 2021 Forbes 400 list with a current net worth of over $26 billion. And he certainly seems to be on to something in creating a new exchange model that combines functions — trading, clearing, data, custody, etc. — that are distributed across multiple entities in traditional models. Recently, they acquired LedgerX and it shouldn’t be long before they move to launch Bitcoin and Ether futures contracts that are based on spot, not an index like the current CME contracts. With between 60% and 70% of crypto volume occurring outside of the U.S., the growth opportunity is huge.
Questions abound, however, not the least of which relate to risk management. In his conversation with Lukken, Bankman-Fried walked through a detailed explanation of the steps that they have put in place to manage risk with a heavy emphasis on automated algorithmic liquidation of problematic positions in real-time. Personally, I recalled my years at the CME where I was exposed to the years of experience and institutional memory of the professionals in the clearing house and understandably worry that a newbie like FTX will be able to handle the hard times when they inevitably arrive. Later, on the crypto market structure panel, moderator Rob Creamer of Geneva Trading noted that they, as professional traders, would have second thoughts about trading on an exchange that would liquidate positions that may be held as an offset to positions on other venues or exchanges. These are just two examples of why we should possibly be wary of the overexcited growth of a new venue.
No such worries exist when it comes to Leo Melamed: his fingerprints are all over some of the most important developments and innovations in modern futures and derivatives markets, many of which are detailed in his new memoir “Man of the Futures”. From the introduction of the first financial futures to the creation of the CFTC, index based futures, electronic trading and more, Melamed is clearly a titan of innovation and market-based solutions. In addition to a much better wardrobe, Melamed has a history of success that Bankman-Fried can’t match. Looking forward, he sees futures-based solutions to address the high cost of both medicine and education as areas with immense possibilities.
The Rise of Retail and Lots of Time for Crypto
The second panel of the day focused on the rise of retail in futures markets and featured Dan Ryba from E*TRADE, Neal Brady of FairX, the NFA’s Karen Wuertz, and Paul Jiganti from IMC with Bob Fitzsimmons of Wedbush ably filling the moderator’s seat. Coming into the industry in the 1980s, I have always subscribed to the old adage that the way to make a small fortune in futures trading is to start with a large one but times have changed. The increase in education, invention of apps that enhance the trading experience, new exchanges like FairX and The Small Exchange and introduction of mini, micro and nano contracts add up to a new day for retail. Ryba demonstrated the ease of trading by executing a trade on his mobile device while on stage (Brady later claimed that the trade made $50) and Fitzsimmons noted that the CME contracts that are growing are mostly of the mini, micro and nano variety. Brady noted that the rise of direct market access and an app experience means that retail futures trading will continue to grow and maybe, just maybe, he will finally be able to get his wife to understand what he does for a living.
The crypto panels came in the afternoon and the final panel of the day, Crypto — Market Structure, was easily the most well attended final session of any conference that I have ever attended. The winning combination of a stellar lineup and a market that is blowing up like a supernova brought people out in droves.
The first crypto panel of the afternoon, Crypto — The Regulatory Landscape, was moderated by Kyle Glenn from the FIA and featured Kari Larsen of Perkins Coie, Kristin Boggiano from CrossTower and Cumberland/DRW’s Chris Zuehlke. A great deal of the early discussion dealt with deflating myths and misconceptions. For example, Larsen said that calling the crypto market unregulated is a misnomer and Zuehlke disagreed with the notion that U.S. regulation is challenged because it’s roots lie in the 1930’s and 40’s, pointing to such actions as Reg AT as examples of how regulation was created, altered, or enacted in constructive ways. Given all of the challenges ahead, the panelists were optimistic with Boggiano pointing out the example of how well the federal government shepherded the early development of the internet during the Clinton administration and Larsen noted that most Congressional activity on crypto to date is being undertaken on a bilateral basis. There are challenges, to be sure, but the revolution is well underway, with Zuehlke describing disintermediation at scale and the inevitability of the metaverse.
The jam-packed final session of Crypto — Market Structure was moderated by Rob Creamer from Geneva Trading and featured Luke Hoersten of Bitnomial, Hehmeyer Nortides’s David Nuelle, David Rosu of Barclays, Galaxy Digital’s Renata Szkoda and Matt Trudeau from ErisX (soon to be part of Cboe Global Holdings). Nuelle pointed out that the World Economic Forum has estimated that 10% of assets will be under/in DLT by 2027 and we are ahead of that pace already. Trudeau noted that high-frequency futures contracts may not be well suited to defi solutions but examples like collateralized loans will benefit greatly and that we are in the installation phase as described by Carlota Perez in her seminal work, “Technological Revolutions and Financial Capital”. The challenges are large but the momentum is massive and growing. Change will be profound but we’re still much closer to the beginning, making it hard to describe the future. As Yogi Berra said: “It’s tough to make predictions, especially about the future.”
And the winner is…..Results from the Innovators Pavilion
The Innovators Pavilion entered its seventh season at FIA Expo with an enviable record of success. The companies that have passed through the pavilion have gone on to raise over a half-a-billion dollars over the years and the depth and quality of the judges for this year’s panel are a testament to the attractiveness of the investment opportunities that reside there. FIA’s Will Acworth has shepherded the program since inception and deserves a shout out for his vision and commitment.
Personally, I have always delighted in assessing the candidates and making a prediction on which firm would ultimately win. I was five-for-five in the first years before being absent for year six so I was ready to test my prowess again. The program was shortened this year so I had to post a tweet to broadcast my guess:
This year I was correct again…..and incorrect at the same time. Databento was the winner of the People’s Choice award from voting in the Expo app while X-Margin was the runner up and the judge’s choice was…..drumroll please…..Stable. As they say on their website, “Combining modern data science with an old-fashioned customer focus has enabled Stable to reimagine risk management. We focus on the 90% of commodities around the world that can’t be hedged currently on a futures market. That’s a big problem to solve ($5 trillion in risk, to be exact).” Congratulations to Stable and all of the great companies in the Innovators Pavilion!
Final — and random — thoughts
- I didn’t get to spend enough time learning more about the great work that The Greenwood Project is doing but plan to shortly. They are helping Black and Latinx students navigate the financial industry through exposure, education, and internship experiences, creating a community that will drive transformation for years to come. Check them out and help in any way that you can.
- I also missed the FIA Cares “Great Tastes of Chicago” fundraiser to benefit the Greater Chicago Food Depository. The FIA has raised over $4 million for GCFD since 2008. Please consider making a donation to support their much needed work — click here to help.
- In what I think is a first, FIA has posted videos for a number of the keynotes and panels from Expo. You can find the speech from Commissioner Stump, the dust-up that was the Exchange Leaders panel, The Rise of Retail, Sam Bankman-Fried shabbily dressed in shorts and white crew socks and more here.
- I’ve always admired the pastries at the Hilton and the fried cinnamon/sugar rectangles with gooey chocolate centers didn’t disappoint this year! Mmmmmm.
All in all, FIA Expo displayed an industry that remains innovative and vibrant. With over 1,000 in attendance even as the pandemic kept most overseas delegates away, the conference had an energy that is a good indication of many opportunities ahead.
Thanks for sticking through to read until the bitter end — “see” you at the next big conference.
Chuck Mackie is a principal at Fathom Communication. Fathom provides thought leadership strategy and content that delivers both depth and understanding for financial services and technology innovators.