Originally published March 16, 2016 on the Maven Wave blog (www.mavenwave.com)
Greetings from sunny, southern Florida! It’s time once again for the annual FIA Boca conference. This is the 41st annual edition of the conference, which began when exchange elders needed a good excuse to escape New York and Chicago in March. It has since turned into one of the largest international derivatives conferences, this year with record attendance of over 1,150 delegates (1). The conference this year begins on The Ides of March and ends on Saint Patrick’s Day, so it’s likely to be especially interesting.
Unfortunately, it doesn’t start that way: day one at Boca is dominated by sessions dubbed “InformationXchange” in which global exchanges take the stage for 45 minutes to trumpet their successes and lay out their plans for the future. Interesting, but not exciting. This year, the exchanges represented were ROFEX, CBOE, Eurex, ICE, and CME Group.
I anticipated a slow start to the day as the first presentation was from ROFEX. I confess that I didn’t do my homework on this one and I didn’t even know who ROFEX was. It turns out that ROFEX is the Rosario Futures Exchange from Argentina, an exchange founded in 1909 and the 27th largest derivatives exchange in the world in 2015. Argentina has been in a world of hurt economically of late, with a bond default several years ago and high inflation, but it looks like that corner is being turned. In the meantime, ROFEX has soldiered on with a growing list of financial contracts, volume that is up over 40% over the last two years, and electronic volume that has grown from 0.04% of turnover in 2013 to 12.1% in 2015. All in all, it’s probably too early to get involved in ROFEX at this point, but continued strong economic fundamentals in Argentina and intelligent moves from ROFEX could make this exchange one to watch.
Following ROFEX, it was time for CBOE to take the stage. Andy Lowenthal, SVP of Business Development, and John Deters, Chief Strategy Officer, made the case for CBOE and once again detailed a strong year of accomplishments. CBOE has reaped strong results from their expansion to a 24×5 exchange and new weekly options. AFX, a joint venture with Richard Sandor’s Environmental Financial Products, is also showing promising early results. Going forward, CBOE will be launching Asian and Cliquet options products and will debut Vector, a new trading engine, on their futures exchange, CFE, in Q3. CBOE continues to think outside the box, with the recent purchase of a majority stake in Vest Financial, as a case in point. Vest simplifies options trading for retail investors by approaching markets based on outcomes rather than strategies and exemplifies CBOE’s open mindedness to new approaches. Of course, with exchange mergers back in play, one has to wonder if CBOE might be a takeover target at some point or if they themselves need to start playing a bigger game. We shall see.
Speaking of mergers: Eurex was the next exchange up and they could talk about everything except for the 800 pound gorilla in the room that is the proposed merger between Deutsche Borse (parent of Eurex) and the LSE. Vassilis Vergotis, head of North America for Eurex, was able to highlight respectable but not very exciting results in OTC clearing, index products, and new services. A good deal of the presentation dealt with DB_360T, the global FX marketplace that arose out of Eurex’s purchase of 360T last year. Carlo Koezler, head of 360T, made a cogent and complete case for the offering, but at the end of the day, it lacked any sizzle. I’ve made similar observations about Eurex in the past, so it may just be my American bias for hype and self-promotion, but I also wonder if Eurex was somewhat hamstrung by the pending deal with LSE. At the end of the day, 360T proclaimed a mission to “become the global leader for listed and OTC FX trading and clearing” and they may just have the drive and focus to quietly make that happen.
Next up was ICE, who as usual, did not disappoint. CEO Jeff Sprecher lead the discussion as six ICE officers highlighted important parts of ICE’s business. Highlights included Ben Jackson, formerly head of ICE Futures US and now Chief Commercial Officer, who described his newly created mandate to cut across ICE assets to create integrated assets for customers. One example that he discussed was the intended integration of FutureSource into WebICE, the internet-based trading platform, as well as ICE’s instant messaging service. Lynn Martin described the comprehensive and robust ways that ICE is expanding their data offerings while Hester Serafini, who joined ICE just 11 days ago as COO of ICE Clear US, described how she sees the exchanges leading in innovation going forward. I point out Martin and Serafini in part because they were the only women on the stage for any of the InformationXchange sessions.
The CME had the last exchange segment and they once again sent their economist Blu Putnam to deliver a combination macroeconomic outlook and product overview. Putnam described the session as a “short tour of global markets” and he proved once again to be a thoughtful and entertaining presenter. In CME news, Putnam reported that the non-precious metals contracts are exhibiting good growth (which may be a positive sign for the global economy) and FX products have been very strong of late. Additionally, the Ultra 10 Year Treasury contract (which actually trades like a 10 year note as compared to the original 10 Year contract which trades like a 7.5 year note — go figure) is the best launch of any contract ever. That’s saying something. Putnam also said that the El Niño weather pattern that helped bring a mild winter to Chicago this year is likely to be followed by an equally as strong La Niña pattern next year, which might mean an especially cold winter next year. That’s also saying something, but it’s not something that I want to hear.
The Future of the Industry
Besides cocktails by the pool (it’s a hard job but someone has to do it), the final session of the day was a panel on The Future of the Industry. The session was moderated by CFTC Commissioner Chris Giancarlo and featuring Doug Cifu from Virtu, Ray Kahn of Barclays, David Rutter from R3, Rob Lazarus of Bunge, and CME Group’s Kim Taylor. They discussed major trends and topics that the industry is facing. Key comments included:
- “Now is the time to resize, rescale, and rethink how trades are processed” — Kim Taylor
- “Fintech is not a case of disruptive technology but rather efficient technology” — Ray Kahn
- “Fat and happy banks are a thing of the past” — David Rutter
- “My developers eyes roll back in their heads when I tell them the multiple and unrelated ways that we have to report trades because regulators don’t coordinate” — Rob Lazarus
- “We are open and transparent and because of that good things happen when we interact with regulators” — Doug Cifu.
Unfortunately, I got to this session late and had to leave early, as I had short meetings to discuss commercial opportunities. Once again, commerce interferes with knowledge! Oh well.
Day Two features a whole lot more panels, including an interactive, facilitated session on the future of market infrastructure that will give me the opportunity to moderate a discussion on liquidity. Tune in tomorrow to hear how that works out!
(1) I was certain that 2015 was also proclaimed a record with 1,200 delegates but FIA Chairman Walt Lukken said that 2016 is the record so I guess I’ll have to believe him.