Boca Bits — FIA Boca 2018 Day Three

Originally published on March 18, 2018 on the Maven Wave blog (www.mavenwave.com)

The third and final day of FIA Expo lacked the zing of day two but still managed to have some intriguing and enlightening moments. The most well-attended panel of the day featured the “bitcoin bros” Tyler and Cameron Winklevoss as well as the traditional appearance by the major clearing houses and not one, but two, fintech panels. On top of all that, the biggest news wound up being generated by two industry heavyweights that weren’t even in attendance for the conference: Terry Duffy of the CME Group and Michael Spencer of NEX Group.

From Clearing to Cryptocurrencies

The morning began with a solid turnout for the clearinghouse leaders although Sunil Cutinho of CME Group quipped that many in the audience were simply reserving seats for the next panel featuring the Winklevoss twins. The panel was moderated by Jan Bart de Boer from ABN Amro Clearing and in addition to Cutinho, featured John Davidson of The OCC, LCH’s Dan Maguire, Eric Mueller from Eurex, and Hester Serafini of ICE Clear U.S. The panel touched on many subjects including the past fiction of Libor and attempts to reform it or introduce alternatives (SOFA for the CME, Eonia at Eurex, and SOIA from LSEG’s CurveGlobal), complaints about and responses to wrongheaded regulations such as the supplemental leverage ratio, and cryptocurrency derivatives as well as blockchain in general. The scepter of Brexit and the previously mentioned tension between the CFTC and EC hangs over the markets and one should expect that there will be some significant developments with the clearinghouses over the next year or two.

Nick Solinger and “The Winklevi”

Clearing was followed by the main attraction: a “one-on-one” interview by Nick Solinger of FIA Tech with Cameron and Tyler Winklevoss of Gemini Trust. It’s a little unclear how an interview of two people is a one-on-one but perhaps the FIA was thinking of these twin brothers as “the Winklevii”, as they were so famously referred to in the Facebook origins movie “The Social Network”. Key takeaways from the conversation included:

• They got their start with bitcoin on Mt. Gox, the infamous, Tokyo-based cryptocurrency exchange that foundered following the massive theft of bitcoin by hackers. They turned this experience into a positive for Gemini Trust as they learned from the mistakes of Mt. Gox, particularly as it relates to cybersecurity for their exchange (by the way, Mt. Gox is an anagram for “Magic the Gathering Online Exchange”: it started as a platform to trade digital cards for this trading card game).
• They have been involved with bitcoin and cryptocurrencies for over five years and they are making the most of their leading position in the industry as the last week called for the creation of the Virtual Commodity Association to act as a self-regulatory organization (SRO) for crypto assets markets in much the same way that NFA does for derivatives and Finra does for securities. Not only will this help to root out bad actors and lend more legitimacy to crypto assets in general, it will also serve as a barrier to entry to new companies as they’ll have to meet standards if they want to gain traction. Smooth move.
• The call for an SRO is just one example of ways in which “the Winklevii” appear to be making the right moves as they grow their company and the ecosystem around them matures from cryptoanarchy and cybernerds to including the ranks of institutional and professional investment. They may have seen their net worth descend from over $1 billion in December to somewhere in the hundreds of millions now, but they’re playing the long game and may well be key players in shaping the development of these markets and products for years to come.

Fintech and More Fintech

Two of the final sessions for the conference centered specifically around the area of fintech. Highlights from the two panels included:

• Matthias Voelkel from McKinsey & Company presenting excerpts from the excellent report on the current state of fintech that they produced in conjunction with the World Federation of Exchanges. The number of fintech firms has grown by 3x over the past six years and had evolved from a retail focus to encompass all of capital markets.
• Steve Husk of CloudMargin personified the dictum that it’s more than good ideas and top technology that drive success, you also need to have the right team that’s been there before.
• On the other end of the spectrum, Goutam Nadella showed how a consortium of some of the largest players in a market can attack an opportunity, in this case the “collabtech” platform, Symphony.
• Catherine Clay from CBOE discussed how a Silicon Valley mindset of innovation through failing fast has permeated how they look at data and analytics. The worlds are merging.

Odds and Ends

Early on, the scuttlebutt around the cocktail parties centered on the absence of CME Chairman and CEO Terry Duffy as well as President Brian Durkin at the conference. COO Julie Holzrichter did an admirable job filling in on the exchange leaders panel (and with the addition of Adena Friedman from Nasdaq it was refreshing to have two women on the dais) but many wondered where the two top CME officers were. Perhaps the announcement on Thursday that the CME is considering a bid for NEX Group had something to do with their absence.

One to watch: t0 (t zero). This distributed ledger (blockchain) platform for capital markets has been at Boca the past several years and with an ATS already in place the game, as it were, may be coming their way. They could be well positioned as the crypto market starts to mature.

Other interesting articles and releases from Boca included:

1. Bloomberg’s take on the reaction to the news about NEX and the CME. Spencer’s NEX Group Rises Most in 20 Years on CME Approach.
2. Did somebody say “APAC”? China to dominate global financial trading in next decade, says FIA CEO.
3. Every derivatives exchange is looking at or interested in cryptocurrency products but one has the most comprehensive and aggressive posture: Cboe Signals Big Plans for Trading Cryptocurrency Derivatives.
4. Trading Technologies made a bold move to the cloud in 2015 and is reflecting back on their success so far with “TT at 3: The Next Wave”.
5. Did somebody say “APAC”, Part 2? Interest in Asia is high in general and specifically with the highly anticipated oil futures that will be open to non-Chinese traders, as referenced here: CQG Connects to INE, New Energy Exchange in Shanghai.
6. Regulation, particularly around market manipulation, remains high, as evidenced as Rosenthal Collins Group Signs with Eventus Systems for Trade Surveillance.

All in all, FIA Boca bore witness to a dynamic international derivatives industry that is facing some difficult regulatory challenges on the one hand but a surging interest in APAC and exciting advancements in technology on the other. Couple that with signs that market activity will be picking up, particularly in fixed income, and the year ahead looks promising. Let’s see how things look as FIA next convenes in London in June and Chicago in October.