Boca Bits — FIA Boca 2016 Day Three
Originally published March 18, 2016 on the Maven Wave blog (www.mavenwave.com)
I’ve written before about the curse of the third day of a conference and the last day at FIA Boca 2016 didn’t break the mold: attendance was down and the energy slowly waned as the day progressed, similar to the air slowly leaking out of a birthday balloon. At the end of the day, however, panels on China, clearing, Reg AT, and technology presented plenty of content and food for thought.
The Best Exchange CEO Position in the World?
Charles Li may well have the best exchange CEO position in the world. He is positioned in Hong Kong, the gateway to China, and he has the ability to take the long view and work patiently to develop his markets in what everyone knows will be a leading financial center for the next 25 years, at the very least. Fortunately, he well understands both the long game as well as the constraints that he faces and this makes him well suited for the tasks at hand. In his one-on-one interview with Paul Davies of Goldman Sachs, Li repeated the Hong Kong Exchange strategy of developing commodity benchmarks for China and displayed his ability to assess the shortcomings of China in a way that is honest, without being overly critical. The development of financial markets in China is the very definition of a long term project and Li displays both the moves and patience to steer the course forward.
The first big panel of the day was led by Mark Ibbotson of G.H. Financials and concerned the future of clearing. There were less sparks than last year, when Skin in the Game (the amount that a clearing house contributes to a default fund and how those funds are applied) led to some spirited exchanges. Thomas Book of Eurex, Sunil Cutihno from CME Group, Dan Maguire of LCh.Clearnet, BM&F’s Cicero Neto, and Muthukrishnan Ramaswami from Singapore Exchange mostly agreed during a session that acknowledged positive developments. These included agreement on CCP equivalence between Europe and the U.S., individual and collective efforts to create products and process to address liquidity needs, and common cause in finding solutions to counteract wrongheaded regulations such as Basel III that are reducing liquidity and raising risk. Behind the agreement, however, differences exist with the most prominent being a general lack of support for CME ideas to potentially create a new class of direct clearing members apart from traditional FCMs.
Six Against One Isn’t a Fair Fight
I give Sebastian Pujol-Schott of the CFTC props for appearing on the panel “CFTC Reg AT: Will It Improve the Status Quo (1)” because it was clearly him against everyone else on this one. While panel moderator Gary DeWaal of Katten Muchin Rosenman and panelists Jim Moran from the CME Group, William Sprenkeler of Optiver, ICE’s Kurt Windeler, Greg Wood from Deutsche Bank and Chris Zuehlke of DRW were polite and civil in their comments, they clearly have many, many disagreements with both the spirit and specifics with the CFTC. Reg AT is a broad and deep set of rules that are intended to monitor and regulate automated trading (AT) in futures markets and the reported number of comment letters (52) and length of some of those letters (104 pages from the CME and 112 pages from the FIA PTG — Professional Traders Group) illustrate the sheer weight of issues that have to be resolved here. Reg AT has deep, fundamental problems, as illustrated by the fact that Chairman Massad referred to it as “principles based” in his comments on Tuesday but the CME and DeWaal count as many as 87 specific requirements in its text. With this being an election year and the CFTC being down to only 3 of it’s mandated 5 commissioners, I would gladly wager that Reg AT will not be resolved in 2016 and an over/under of 2018 isn’t at all out of the question.
Industry Changing Technology 2016 = Blockchain
The panel after lunch was titled “Industry Changing Technology” but it was really “Let’s Talk About Blockchain”. Blockchain is quickly turning into the defining phrase of 2016 just as “cloud” was four or five years ago — it’s ubiquitous and nearly everyone agrees that it’s going to be big but it’s not exactly clear how or when. To be fair, there was some discussion of cloud on this panel but the makeup of the panelists, with both Patrick Daley of Overstock.com and Charley Cooper of R3CEV as pure play blockchain enthusiasts, while ICAP and MarkitSERV have skin in the game and Bloomberg may be the “most likely to be disrupted” enterprise in this debate. Most agree that blockchain adoption will be more infiltration than big bang and the consensus is that first uses will be in markets other than futures and that widespread impact likely won’t occur for 3 to 5 years. Personally, I suspect that things may move much faster than that (2).
Final and Random Thoughts
The FIA concluded the conference with “The Results Show”, a combination of feedback from an online survey of conference attendees and a breakout session on key industry topics. The results can be summed up in one word: optimism. I concur with this and it’s illustrated in the conference attendance numbers: a new record of ~1,200 with 30% being first time attendees.
Besides that, here are a few random thoughts to wrap things up:
- The pointed but polite questions during the Reg AT panel led me to think of creating a “Trumpinator” app (patent pending) that would take the pointed content from a question, simplify it, exaggerate it, mention China or Mexico, and add an insult or two. For example, a comment such as “Reg AT doesn’t adequately address questions of cost benefit analysis” might become “Reg AT is a disaster, a disaster, it’s horrible and it will cause all of our trading to move to China and it’s yet another case of incompetent Washington bureaucrats and Wall Street flunkies making it so that America can’t win anymore.”
- FIA head Walt Lukken referred to CFTC Chairman Massad as “the James Brown of the futures industry” (i.e. hardworking) and his actions and demeanor are widely praised by the industry.
- The FIA mourned the loss of Diane McFadden this week. I worked with Diane when I was at ICE and cherished her depth of experience and collaborative spirit. She will be missed. On another note, it was refreshing to hear Kim Taylor’s distinctive (and loud) laugh echoing through the sessions and halls of the conference once again. We missed her when she was away.
- There sure were a whole lot of analysts in attendance. I wonder if the LSE/Deutsche Borse merger had anything to do with that?
- Companies with buzz: Neurensic, Open Gamma, t0, and Duco.
- Speaking of buzz, whatever happened to the buzz around “futurization” from several years ago? History will show that the short term concerns about futurization turned into the long term reality of trade compression.
- I’m not calling the top yet but the market is getting closer to having the regulatory pendulum stop its swing to more and more restriction. At least I hope so because unqualified adoption of MiFID II and Reg AT would likely kill us all. And that’s before I put that comment through my Trumpinator app!
That’s it for FIA Boca this year. I have a great deal more detail in my notes and many thoughts and opinions to compliment my reports from the past three days. Please reach out if you’d like to discuss things further.
(1) I won’t even begin to try and make sense out of this panel title. “Status quo” means “the state of which” in Latin so, while it can be maintained, it can’t be improved because that would mean it had been changed. In that case, there would be a new status quo.
(2) Then again, I thought that Bernie Sanders would win both the Illinois and Ohio primaries on Tuesday so what do I know?