Boca Bits — FIA Boca 2017 Day One
Originally published March 15, 2017 on the Maven Wave blog (www.mavenwave.com)
It’s highly likely that FIA Boca was at least in part initially designed as a way for futures industry bigwigs to escape the chill of winter with a few days of sun in Florida in March, a purpose that still resonates today. However, that purpose takes on cruel irony when weather intervenes and prevents many attendees from making their way down to Boca Raton at all. Such was the case this year. If it’s any consolation, it’s a little bit chilly here and the clouds are a little thick although, it must be said, there is absolutely no chance that it will snow. Besides that, there was a lot to be said about what’s going on in the futures industry.
“Informationxchange” Leads Off
Day One of Boca begins with the “Informationxchange” series and this year the number of exchanges presenting, like so many things in the futures industry, dropped as only three exchanges were represented. Gone this year was Argentinian exchange ROFEX as well as CBOE, which might well have been expected to step up to glory following their merger with BATS. (I suspect that they have more pressing matters at hand, although Ed Tilly, Andy Lowenthal, Jay Caauwe, and others were on hand for the conference). In any event, only Eurex, ICE, and CME stepped up to make presentations.
Eurex kicked off with a typically detailed but slightly dry recap of results and a peek into the future. 2016 volume was up slightly and Eurex U.S. CEO Vassilis Vergotis highlighted progress in VSTOXX, Dividend futures, and MSCI. Philip Simons gave a rundown of clearing success with an emphasis on a growing number of participants: 151 for repo, 57 for swaps, and 391 clearing licences in 18 countries. Finally, Carlo Kolzer, head of Eurex’s FX efforts, reprised his presentation from 2016 and promised a year full of initiatives, including the introduction of Rolling Spot and other enhancements later in the year.
From there, it was on to ICE, which filled the stage with numerous business heads and, once again, had the only female representation for any presentation or panel today.
Jeff Sprecher was not on the stage this year as SVP for Financial Markets; Chris Edmonds moderated in his place. Edmonds was joined by ICE Benchmark Administration head Finbarr Hutcheson, Lynn Martin from ICE Data Services, ICE Futures U.S. President Trabue Bland, and Hester Serafini, President and COO of ICE Clear U.S. In a fitting indication of how important data has become for ICE, Lynn Martin went first and she gave the most detailed and informative look at the many facets of the ICE data business, which includes connectivity and feeds, exchange data, valuation and analytics, and desktop and tools. ICE has robust initiatives in all areas. Hutcheson also delivered quite a bit of detail about Benchmark Administration, which now manages the daily fix for LIBOR, ISDA swaps, and London gold, but curiously made no mention of future plans or initiatives. In fact, the rest of the ICE presenters said little about new initiatives, with the exception of Martin and Bland talking about a new, integrated offering that brings WebICE, ICE IM, and a new market data display terminal together, first for softs and soon for energy. In the end, however, the conversational tone of the ICE presentation gave the impression of a large, balanced, and confident business team.
The final exchange presentation came from CME Group and once again, Chief Economist Blu Putnam touched on nearly all CME product areas, as he discussed developments in the oil, copper, interest rate, and agriculture (specifically corn) markets. Putnam is a gifted presenter and his remarks contained many interesting facts and observations, but to me, this format has gotten a bit stale. There is much more to the CME than products and they would do well to highlight areas like tech initiatives and product innovations in their remarks. One great piece of advice from Putnam was to make sure and not miss the coming solar eclipse on August 21, with the best viewing along an arc that stretches from Portland, OR to Charleston, SC. Now that’s news I can use!
News From Our Sponsor and a Panel to Pound on Regulators
The day wrapped up with remarks from FIA head Walt Lukken and a panel on “Taking Stock — An Industry at the Crossroads”.
Lukken’s remarks closely mirrored the FIA’s January letter to President Trump and recent remarks at other FIA events. Simply put, the FIA is currently focused on three key areas: smart regulation and enforcement, global access, and competition and innovation. While these may seem to be straightforward and simple, there is a great deal of complexity behind the issues and the stakes for getting them right are very high. The industry very much needs a strong and direct hand from the FIA right now.
The “Taking Stock” panel was moderated by Ed Pla from UBS and featured Michael Bodson of DTCC, Craig Donohue from OCC, NEX Group’s Michael Spencer, and Don Wilson of DRW Trading. Sitting through the conversation, I had the impression that there was a great deal of constructive engagement — examples included Bodson saying that the system is stronger following post crisis reform, Donohue describing how real progress often comes not just from home runs but more often from singles and doubles, and Wilson commending the new ICE Funds Rate as potentially revolutionary product development. As I read my notes, however, I was taken by how many negative comments were made, particularly with regard to regulators. Examples included:
- Donohue describing the term “market structure” as ironic because the shape of markets has been bent into microstructures that serve narrow interests so that only a few can even begin to explain and understand the first principles that are supposed to underlie markets.
- Bodson saying that we’ve forgotten about the end customer and have, instead, made it “damn near impossible” to lay off non-standard risk. He also gave an example of “dumbass regulation” that requires DTCC (and others) to be back online within two hours of a cyberattack, regardless of other considerations, including the preservation of evidence from the attack.
- Wilson on the era of “gotcha” regulation that focuses mostly on headlines and fines.
- Spenser on a number of occasions including his taking to task a draft U.K. regulation that contained language that said that normal hedging could be considered to be manipulative in some cases (regulators couldn’t come up with an example of where that would be true when he pressed them for one). Most pointedly, taking the CFTC to task for their prosecution of Wilson and DRW for manipulation of swap futures prices, a case that is pending a judicial decision. Somehow, Don Wilson managed to keep a straight face through Spencer’s remarks but I suspect that he was smiling on the inside.
To conclude the panel, Pla asked a twisted, little question as to what the panelists would be surprised by if it didn’t happen in 2017. Bodson got it a little backwards when he said the chance for big reform (meaning, I think, that he thinks that Dodd Frank reform won’t happen), while Donohue answered “volatility”, Spencer said that risk to the Euro currency wasn’t high, and Wilson talked about European interest rates being priced to perfection for a rate hike. I’m not sure where he stands on that.
On to Day Two
Day Two features a word from the just-nominated CFTC Chairman, Chris Giancarlo, the ever popular Exchange leaders panel (with Terry Duffy in the Phupinder Gill role for the first time), as well as panels on fintech and regtech, among others. Look for an update in your inbox on Thursday.