It felt order was returned to the universe as FIA Expo kicked off in Chicago on Wednesday. No Zoom calls or talking head software apps here: this was live and in-person, the way it’s supposed to be. It was like a breath of fresh Spring air as we heard from the CFTC, exchange leaders, clearing operations, fintech disruptors, and “Crypto Dad”. Throw in presentations from five of the eight firms in this year’s Innovators Pavilion, and some fireworks that bordered on fisticuffs and it was quite a day indeed!
Games from the CFTC and Fireworks from the Exchange Leaders
Following a rousing introduction from FIA President and CEO Walt Lukken, CFTC Commissioner Dawn Stump got things off to a fun start with a game show themed speech that borrowed from both Family Feud and Jeopardy. In the first instance, the top three answers to the question “In 2021, what topic is a CFTC Commissioner most often asked to address when invited to speak?” were, not surprisingly, were Crypto/Digital Assets, Climate Change/Carbon Markets, and ESG. The second Family Feud question was a bit more obscure but still illuminating: “During the first half of 2021, what topic most often dominated my conversations with former Commissioner (Dan) Berkovitz?” The answers? Event Contracts, Retail Interest in Derivatives Markets, and Interesting Podcasts or Non-Fiction Books.
You can find the full text of Stump’s remarks here.
Next up was the ever popular exchange leaders panel. The usual lineup was reduced due to pandemic travel restrictions as FIA’s Jackie Mesa led a discussion with Terry Duffy from the CME, ICE’s Jeff Sprecher and Ed Tilly of Cboe. In brief, Tilly was too soft spoken for my liking, Sprecher displayed his usual unique spin on a number of topics from European regulatory equivalence to the Atlanta Hawks basketball team selling tickets to watch just the 4th quarter of a game and Duffy was…..Duffy: gruffly mentioning the Virginia election, the risk of crypto using gambling laws to evade regulation, and “my” customers.
It’s no secret that there seems to be some animosity between Sprecher and Duffy and they sparred repeatedly during this session. It began when Duffy deferred to Tilly when both started to answer a question about crypto and Sprecher quipped that Duffy would let Tilly go first and then crush him, alluding to the fact that Cboe was first to launch bitcoin futures but CME was ultimately the winner when they launched second. Later, in a discussion of event contracts, Sprecher suggested that a contract on how many Teslas were sold in a quarter might be of greater interest as an economic event contract than the price of Tesla stock but Duffy wasn’t having any of that. He said that factory workers could slow down production to hit a number, making the contract manipulable. Duffy was pretty animated as he decried gambling and went on to make it personal by saying that Sprecher’s wife didn’t disclose her trading when she was a U.S. Senator and ran into trouble with the SEC. Sprecher, for his part, didn’t take the bait but he did offer a calm explanation of what he said really happened. In any case, Duffy was clearly out of line.
One interesting set of answers from the trio came when it was asked if any of the leaders owned any crypto. Not surprisingly, Tilly said that yes, he does, Sprecher said no but only because his wife was in government and he has to report everything and Duffy said no, he’s a gold guy. That pretty much sums it up.
Pinch Me: Operations is More Interesting Than Fintech Innovators!
I never thought that I would say it, but the operations panel was more interesting this year than the panel of fintech disruptors that followed it. This anomaly is largely attributable to a recently published report from the FIA in the first case and my having to duck out early in the second.
The report in question is “Modernizing the Listed Derivatives Workflow: A Blueprint for Change”, calling on participants in the futures and options industry to work together on a major initiative to improve the efficiency of the trading and clearing process for exchange-traded derivatives. Commissioned by the FIA and conducted by JDX, the report is in response to the long known but never addressed inefficiencies in post-trade processing that were brought into stark relief by pandemic induced volatility in March 2020. In short, processing bottlenecks threatened to choke and stall the whole system as give-ups and confirmations swelled, distorting risk and creating excessive financial strain on market participants. Serious stuff.
The report was the topic of conversation in the Roundtable on Operational Efficiency panel. It calls for a three step process that will see the creation of an industry market standards body followed by the development of a “collaborative and meaningful agenda” and, finally, the establishment of an “industry call to action roadmap”. This “kumbaya moment” of customers, exchanges and FCMs (vendors contributed to the report as well) is a solid step in the right direction but the proof will be, as they say, in the pudding. It will likely take firm and consistent leadership from FIA to keep the project moving forward.
As for the fintech disruptors on the Evolving Technologies panels, the discussion was a little slow in getting going as everyone prattled on about how much the pandemic affected everyone but found it’s stride about 20 minutes in. Unfortunately, I had to duck out to catch the one-on-one between “Crypto Dad” Chris Giancarlo and Walt Lukken so I missed most of the good stuff. Suffice to say that it behooves market participants to pay attention to MayStreet (Patrick Flannery), Baton Systems (Arjun Jayaram), VoxSmart (Larry List) and Cosaic (Dan Schleifer). They are not so quietly shaking things up. Kim Trautmann from DRW ably moderated the panel, as per usual.
Thoughts from Crypto Dad and Innovator Pitches
The one-on-one discussion between former CFTC chairman Chris Giancarlo and Walt Lukken was filled to overflowing and far too short at only 30 minutes in length. Dubbed “Crypto Dad ‘’ by the Twitterati, Giancarlo is promoting his book of the same name and his clear headed and insightful approach to the emerging world of cryptoassets is a breath of fresh air. He vigorously counters the myopic perspective emanating from the SEC, stressing that the SEC’s primary focus on investor protection needs to be balanced with the CFTC’s ability to support innovation. The stakes are high as the world in general and China in particular will be adopting digital currencies and other cryptoassets whether the SEC moves to quash them or not. In fact, Giancarlo speculated that there may be a method to the madness that found SEC Chairman Gary Gensler breezily confirmed while the CFTC is hobbled by having only two sitting commissioners. Stranger things have happened but this, if true, could spell trouble for crypto innovation in the months and years ahead. In any case, “Crypto Dad: The Fight for the Future of Money” should be on the nightstand of all market practitioners.
The end of the day featured presentations and questions from a panel of judges for five of the eight companies that populate the Innovators Pavilion at this year’s Expo. One firm stood out from the rest but the final three will have their moment in the spotlight on Thursday so I’ll delay discussing them until my recap of the final day. I’ll try to tweet my prediction on the winner following the last presentation and prior to the announcement of the winner. I’ve had a good run of predicting the winners in the past and I hope to continue my unbeaten streak. Stay tuned for that.
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.