Boca Bits — FIA Boca 2015 Day Two
Originally published March 12, 2015 in the Maven Wave blog (www.mavenwave.com)
FIA Boca is always a three day affair but it’s the second day that has the meatiest content. Tuesday is arrival day, Thursday sees lower attendance due to early departures and the boat cruise/big dinner/Luna Bar burnout, and Wednesday is where the action is. The day kicked off with CFTC Chairman Massad, featured the ever-entertaining Exchange Leaders panel, and ultimately delivered much more useful content. This was CFTC Chairman Timothy Massad’s first visit to Boca and he acquitted himself admirably. He spent a good amount of time on the issue of clearing house capitalization and default waterfall structure and his comments reflected a measured approach that has been so lacking in recent years. In addition to pointing out how much has already been accomplished, he decidedly favored a measured and incremental approach to the current raging debate on such issues as “skin in the game.” On the face of it, he seems to favor the status quo that is championed by the clearing houses over the clearing member and buyside calls for change. There will be a forum on the issue in Washington next week, so keep an eye out for further developments.
Interview with Ng Kok Sung, SIMEX
The second panel of the day featured a one-on-one interview of Ng Kok Sung by FIA Chairman Walt Lukken. Kok Song was a founder of SIMEX and served as the first chairman from 1984 to 1987. His anecdotes and attitude highlighted the calm temperament and long-term view that is so lacking from so many current discussions and debates. When reflecting on the founding of SIMEX, for example, he related how the problem that Singapore authorities faced with gold bucket-shops and the competitive pressure that the CME was feeling from London on Eurodollars led to the mutually beneficial and revolutionary introduction of mutual offset between the CME and SIMEX. He gave credit to the CME team, led by Leo Melamed, for the truly creative, out-of-the-box thinking but his humbleness does not diminish how innovative Singapore was then and continues to be. On that, he said that Singapore is creative because as such a small state it has to be, although he failed to mention how much the exceptionally strong hand of the Singaporean government contributed to that success. Singapore had to look West in the 1980’s but the future for them is to the East. He also said that “you ain’t seen nothing yet,” when it comes to opportunity in China. He brushed aside concern that the Hong Kong — Shanghai Connect has started slowly; the important thing is that the bridge has been built and growth will happen over time. All in all, his calm and steady demeanor and opinion was a breath of fresh air.
Exchange Leaders Panel
The Exchange Leaders panel followed and was expertly moderated by Bloomberg Television anchor, Betty Liu. Magnus Bocker from SGX, Phupinder Gill of CME, Charles Li from HKEX, Andreas Preuss of Eurex, and Jeff Sprecher from ICE reprised their appearance from last year and their familiar and humorous banter was evident once again. For example, Preuss didn’t have a chance to make a comment until 10 or 15 minutes into the panel and when he did he observed that the panel was a microcosm of the world: two U.S. exchanges, two Asian exchanges, and one European exchange that was trying to get the chance to speak. On a more serious note, he went on to note that all of the exchanges are global businesses that are trying to cope in a world of local regulation (industry speculation is that Eurex may decamp to Asia if local European regulation fulfills it’s current draconian trajectory — now that would be a story). All of the panelists agreed that regulation takes far too much of their time. On a more positive note, the Hong Kong — Shanghai Connect is just the first of many “bridges” to China. Sprecher went as far to say that he was “jealous” of Li’s bridge, while Bocker commented that more linkages will follow but strict regulation in China will be a governor on growth. Finally, it was notable to me that Sprecher was alone in referring to “my exchange” and “my team” — fire and passion still burns hotly with him.
Algo Standards Panel
The Boca program split into two tracks at this point and I chose to avoid the regulators panel because it was, well, all regulators on the panel; I opted instead to go to the panel on Algo Standards. Led by Leslie Sutphen of Financial Markets Consulting and featuring Keith Fishe of Tradeforecaster, Jim Moran from the CME, Eurex’s Michael Peters, Greg Wood of Deutsche Bank, and Chris Zuelke from DRW, this panel displayed the derivatives industry at its best: a group of people united to doing long and hard work to craft standards and solutions that are of benefit to all. What’s more, the group has gotten back to the principles-based approach that the industry embraced in its time of greatest innovation and growth, instead of the rules-based “gotcha” approach that has prevailed since the meltdown. They have gotten away from a narrow focus on HFT and shifted to all automated trading and they clearly hope to head off a move to require that proprietary traders face mandatory registration. Time will tell if they succeed or not. In any case, this group will publish a white paper on their recommendations in the coming weeks, so stay tuned.
Capital Considerations Panel
The panel on Capital Considerations delivered the news that a similar panel at a fixed income, foreign exchange or equity trading conference would echo: regulation intended to enhance transparency and safety is instead having the impact of shrinking the amount of capital available to manage risk. Moderator David Olsen of JP Morgan summed it up well when he said that a lifeguard can ensure that no one drowns by draining the water from the pool. The stark warnings from the panel left me thinking that I should have gone to that regulators panel after all: do they see and acknowledge the extremely dangerous conditions that they are fostering? It’s easy to be pessimistic and the only hope is that the next crisis won’t happen soon and the overall market will have time to evolve to counter the damage that regulators have wrought.
Trading Swaps in the Post Financial Reform Era Panel
The final panel of the day illustrated how quickly the market can adapt. Entiltled “Trading Swaps in the Post Financial Reform Era”, the comments from the panelists touched on the many challenges that still need to be met but also featured examples of how things are evolving and growing. A case in point is Bloomberg, where between 1,100 and 1,200 customers can trade swaps, the CLOB is growing, and the popular truism that regulation is driving geographical arbitrage/liquidity bifurcation is not supported by reality. It has been a little over a year since OTC Clearing came on in full force in the U.S. and the market is showing many healthy signs of adapting. The day ended with a Cajun-themed cocktail and food soiree by the pool and a party featuring music by The Dirty Dozen Brass Band. But you’re not here to enjoy it so it would be rude to say anything about how fun that was. Stayed tuned for news from day three and a recap of the event!
