Boca Bits — FIA Boca 2016 Day Two
Originally published March 17, 2016 on the Maven Wave blog (www.mavenwave.com)
Day 2 at Boca is the big day of the conference, both in terms of the content and in attendance and this year the content was top notch from the keynote speakers to the panels.
Two Political Stars Shine at Breakfast and Lunch
The day started with the ICE Energy Breakfast that featured ICE CEO Jeff Sprecher going one-on-one with former Speaker of the House John Boehner. Retirement seems to be setting well with Boehner as he was ready to rip on all sorts of political topics. Specifically:
- Boehner said that he would never have wanted to be President because it’s like “voluntarily climbing into a jail cell and then letting people throw rocks at you through the bars”.
- While he endorsed John Kasich for President, just last Saturday he said that all bets are off if the convention comes and no one has the number of delegates needed to secure the nomination. If that’s the case, he will back current House Speaker Paul Ryan.
- Asked about Ted Cruz, he said that he considers him to be “Lucifer in the flesh”.
No holding back.
In the other non-industry session, former Secretary of State and NSA Head Condoleeza Rice addressed the lunch crowd. Rice gave a much more comprehensive and nuanced talk than Boehner and it was like a breath of fresh air in this political season of sophomoric bluster and zinging sound bites. I took three pages of notes but I won’t replay all of her talking points here. Several of the highlights included:
- In 2008, then President Bush questioned the veracity of polls that showed low approval ratings for his administration. Rice told him that “they’re sick of us and, honestly, I’m tired of them too”.
- The greatest long-term threat to America may well be the state of our K-12 education system.
- When it comes to Donald Trump, she would like a President that isn’t holding his first position in government when he ascends to the Oval Office because, quite frankly, governing is hard.
- Despite all the heat with the 2016 Presidential campaign, the Republic will survive. The Presidency is bigger than the President.
On With The Show
Aside from the political superstars, there was plenty of firepower on the panels as well. CFTC Chairman Timothy Massad kicked things off and was followed by the first of two exchange leaders panels. Massad detailed what has already been a very busy 2016 for the CFTC with an agreement with Europe on CCPs and equivalent jurisdiction in February and numerous MEGO (1) issues like residual interest, clearinghouse resilience, and a final rule on trade options. Massad made his most animated comments during the Q&A session after I asked him to respond to Congressman Jeb Hensarling’s call to “pull Dodd Frank out by the roots and relegate it to the trash heap of history (2)”. Massad said that no one wants to go back to a lack of transparency, no one wants to go back to unregulated markets that nearly dragged down our economy in 2008, and that critics said similar things about the SEC two years after it was created in the 1930’s but we would likely all agree that it’s good that no such action was taken.
The Future of Markets — A Global Perspective
A popular feature at both FIA Expo in Chicago and FIA Boca is the exchange leaders panel. FIA Chairman Walt Lukken moderated as senior exchange officials Phupinder Gill from the CME, Charles Li of the Hong Kong Exchanges, Loh Boon Chye from Singapore Exchange, Eurex’s Andreas Preuss, and Jeff Sprecher from ICE once again engaged in their playful and pithy back and forth. The driest moment was Preuss reading a lengthy and detailed statement regarding the just announced merger of Eurex parent Deutsche Borse and LSE from a Moleskine notebook. When he was finished, Lukken voiced the thought of many (including me) when he said: I thought you were going to read that whole notebook!
The merger was a topic that was not only referenced but also influenced what wasn’t said. Gill got off a couple of good comments about (fictitiously) firing CME lawyers that tried to stifle his off-the-cuff comments and Sprecher deferred on a couple of questions that touched on the subject. Elsewhere, Gill was on message as he referred to the new Ultra 10 Year contract, which has quietly become the most successful futures product launch in industry history, and in elucidating the CME strategy of acquisition at home and cooperation abroad. Sprecher was good as usual and even spent a little more time than usual in waving the flag of success at ICE, including their new world cotton contract. Loh was the newcomer on the panel and had the fewest questions and shortest answers. He did say that he sees FX as a key category to target for future development. Finally, Li did an excellent job of describing the patience and long time horizon that Hong Kong is practicing when it comes to developing business in China. Specifically, they are targeting commodities by developing a basis of trust for benchmarks and later they will either develop markets within China, work with other entities to launch the products there, or take the products to Hong Kong for listing. In short, they have options and are taking the long view to achieving success. The Hong Kong Exchange will undoubtedly succeed and be one of the preeminent global exchanges for a long time to come.
It’s a Financial Conference in 2016, So Where’s the Blockchain?
An early leader in the competition to be the 2016 story of the year is blockchain and it was little more than a mention at Boca until the One-On-One Interview featuring Rob Creamer from Geneva Trading talking with Patrick Byrne of Overstock.com. Byrne rose to prominence as a critic of settlement processes on Wall Street and he is a leading proponent of blockchain. The interview ran for half an hour which was really too short to give Byrne the time to stretch out his thoughts and plans on blockchain. He did say that he thinks that the three constituents that are in a position to either take advantage of or lose out with blockchain are banks and prime brokers, exchanges, and central depositories. One or more of these may take advantage of the new technology but one or more of them, depending on the asset type or geographical location, is also going to be a loser. When asked “why blockchain?” he gave three reasons:
- Cost. He estimates that they can reduce transaction costs in equities trading by 80% to 90%.
- Adoption of blockchain will include the creation of a consolidated audit trail, a stretch goal that the SEC has found to be elusive.
- The last bit of “slop” or “mischief” will be removed from the settlement process.
Byrne will be appearing on a panel on Thursday so you’ll hear more about him and his actions tomorrow. As for who he’s looking at in this space, he mentioned both Symbiont and Digital Asset Holdings as being of interest.
Time for the JV Game
After the global exchange leaders panel in the morning, the afternoon featured Exchange Leaders on the Future of Markets, a sort-of minor league gathering of exchange heads. Former SEC Commissioner and current President of Potomak Global Partners, Dan Gallagher, discussed growth, technology, and regulation with Chris Concannon from BATS, Tom Farley of NYSE, Nasdaq’s Hans-Ole Jochumsen, and Edward Tilly from the CBOE. The lightest moments came when Farley declared that he would be speaking on behalf of Concannon because the pre-IPO quiet period for BATS precluded Concannon from making any statements. Farley went on to jokingly say that conditions were very difficult and that it was going to be hard to compete, etc., obviously taking great delight in the constraints that his long-time competitive nemesis is facing.
Friendly competition is alive and well in the exchange space. While difficult conditions were acknowledged, including regulation that was epitomized by 4 different inspection teams visiting Farley’s NYSE in the same week last year and proposed non-sensical margin changes for Tilly’s options products at CBOE, all of the exchange leaders are optimistic for their core businesses. The central reason for this is technology, which includes new matching engines for both CBOE and NYSE and active blockchain efforts in Europe from NASDAQ. Concannon got his best comment in on the first point, stating that BATS always had good technology, so they don’t need to put in new matching engines.
One More Day To Go
The final day of conferences is always a bit more laid back and quite a bit less crowded as the bigwigs depart and others succumb to exhaustion, hangovers, and/or the beach. Still, panels on China, the future of clearing, CFTC regulation of automated trading, and industry changing technology promise to deliver some fresh insights and observations. Be on the lookout for one last report from Boca Raton.
(1) MEGO: My Eyes Glaze Over
(2)You can’t make this stuff up: Hensalring quoted both Bono and Kanye West in his call to repeal Dodd Frank
