Boca Bits — FIA Boca 2018 Day Two
Originally published March 15, 2018 on the Maven Wave blog (www.mavenwave.com)
The panels at FIA Boca have produced their fair share of interesting and at times newsworthy discussions in years past. But it’s a rare event when a panel on one of the most hyped and headlining stealing technologies of all time (bitcoin) is overshadowed by both a look back at the 2008 financial crisis from some players who were in the room at the time and the normally staid conversation around the state of international regulation. That was Day Two at FIA Boca 2018.
Exploding 10 Year Old Bombshells
Day two at Boca began with remarks from CFTC Chairman Chris Giancarlo. While Giancarlo did not receive a standing ovation from the crowd like he did last year, his remarks were well received and reflected what may be the only example in the U.S. government these days where revising and right-sizing regulations is being carried out in a thoughtful and universally constructive manner. He began his remarks by giving credit to the vision and hard work of Leo Melamed and outlined the areas where the values that he aims to instill at the CFTC (partnership, harmonization, etc.) are being put to use including swap dealer minimums, the supplemental leverage ratio, SEF rules, position limits, and Reg AT. All of these areas have generated heated debate in the past and many feel that the some of the rules got it wrong the first time through but Giancarlo is displaying a steady hand on the tiller as he rationally and diligently tackles each issue in turn. Well done.
The next panel, “Ten years on: A retrospective view on the financial crisis”, might have been expected to be a boring or self-congratulatory stroll through the events of the 2008 financial crisis but it was anything but that as retired Congressman Barney Frank, in particular, was more than happy to upset the apple cart of history. FIA President and CEO Walt Lukken led the discussion that also included Paul Adkins of Patomak Partners (and at the SEC in 2008), Craig Donohue of OCC (CME in ‘08), Frank, and Thomas Russo, now retired from AIG but at Lehman as CLO ten years ago. The exchange was particularly heated between Adkins and Frank as they debated the ultimate costs of the TARP program, with Adkins suggesting that Frank “take some accounting classes”, comments that rolled off the back of Frank as he countered that they should stick to “adult” conversation. There seemed to be a general consensus that it was a mistake to let Lehman Brothers fail in September of 2008 but beyond that, there was little agreement on the lessons learned. Market reforms such as the mandatory clearing of many OTC derivatives have made the overall system more transparent and resilient but other developments are less clear. In particular, one has to wonder if politicians would react in a bipartisan manner to provide the same level of assistance (some would say “bailouts”) has occurred beyond 2008 particularly because of how the Democrats summarily lost their majorities in 2010 and 2012 as a result of the Tea Party movement that arose in response to TARP and other “bailouts”. Politicians have long memories so will they do what’s right for the country or save their own jobs if there is a next time and extraordinary measures are required to keep the economy from melting down? It’s a sobering thought.
The balance of the morning session was devoted to exchanges as Ed Pla of UBS sat down with Thomas Book from Eurex, Nasdaq’s Adena Friedman, Julie Holzrichter from CME Group, Loo Boon Chye of the Singapore Exchange, Jeff Sprecher from ICE, and Cboe’s Ed Tilly. After the previous panel, the exchange leaders were paragons of comity and grace. There were a couple of jabs particularly directed at the CME as Sprecher responded to an audience question by saying that he wished he had bought the CBOT (and Holzrichter responding how glad the CME is that they bought it instead) and Tilly referring to “followers” to their introduction of bitcoin futures last December (to which Holzrichter, again, immediately rejoined that CME had developed a bitcoin index over one year before launching futures). Beyond that, however, the exchanges generally stuck to their scripts, no doubt making their PR handlers happy. Book and Sprecher alternately soft-peddled and spun the significant political and regulatory challenges that they are facing: Book described preparing for a post-Brexit world as playing chess without knowing the rules while Sprecher commented that it’s ugly to watch politicians do a business deal and going further, to some laughter, by saying that he would make no comment on what the opposite looks like. Friedman emphasized technology and saw market conditions as a reshuffling rather than a contraction, Lee noted the strength of emerging markets as independent from the U.S. and more than once stressed cooperation as exemplified by their relationship with Nasdaq, Tilly emphasized growth on the back of their successful merger with BATS and as exemplified by the introduction of bitcoin futures as the first step in a multi-year effort to build a full suite of products and services around cryptoassets, and all claimed that blockchain is on their radar screens for development. Then again, what else would you expect them to say about that?
More Bombshells in the Afternoon
Following an inspiring and refreshing luncheon speech by author Walter Isaacson, the fireworks continued in the afternoon and emanated from the most unlikely of sources: international regulation. CFTC Commissioner Brian Quintenz led off with what could be described as a “mic drop” speech as he boldly called out the European Commission for their proposed legislation on cross-border regulatory equivalence. Most speeches of this ilk are flowery and vague but Quintenz was having none of that. He said that “I now have serious questions about our counterpart’s trustworthiness as well as their priorities” and used words like “renege”, “foolish”, and “a limit to our patience” to warn against the EC proposal. Lest there be any doubt, he also said “The EC’s proposal is unacceptable to the CFTC. It is unacceptable to the United States Treasury Department. It is unacceptable to senior United States Senators. And it is unacceptable to the White House, itself. The entire United States Government is steadfast in its opposition to the EC’s proposal.” Crystal clear. And with that, Quintenz turned on his heels and exited the stage, taking no questions.
The FIA’s Jackie Mesa had her hands full with the panel following as the resulting tension was palpable in the room. The better part of the discussion was taken up by the EC topic as Patrick Pearson from the EC steadfastly and obstinately stuck to his guns in the face of Quintenz’ comments and further comments from fellow panelist Eric Pan of the CFTC, who was perhaps more diplomatic than Quintenz but just as resolute. Pearson said that they need to have an adult conversation with a regulator that is not scared and defending their turf while the CFTC position can perhaps be boiled down to the simple assertion that a cross-border recognition deal was consummated in 2016 and there have been no material changes since that time so the deal stands. This may not turn out well at all. The other panelists — Alastair Hughes from The Bank of England, Ryozo Himino of FSA Japan, and Patrice Aguese from Autorite des Marches Financiers — were unfortunately for them largely relegated to spectator status at a schoolyard brawl.
The day concluded with a panel on Bitcoin and Listed Derivatives, a shrewd move by the FIA because the white-hot interest in all things “crypto” guaranteed that the room would be full in what is normally the quietest session of the day. Richard Gorelick of DRW led the discussion that included John Deters from Cboe, Tim McCourt of CME Group, TT’s Michael Kraines, Bo Collins of Renovatio PR, Paul Bauerschmidt from Coinbase/GDAX and Bcause’s Fred Grede. After the fireworks from the previous panel, the Bitcoin discussion came off as somewhat boring, which is surprising given how much the cryptocurrency craze has swept the globe since the last FIA Boca. One interesting observation was the optics of the panel: here were seven older white guys talking about an emerging technology that has its roots in the cyberpunk, anarchy-loving side of the tech world. It’s not clear that Satoshi Nakamoto would approve. Looked at another way, however, this panel represents the quick passage from childhood to maturity that cryptoassets are just beginning to take and the reps on the panel, while “white and old”, are taking bold steps: Gorelick as a representative for what may well be the largest and most influential crypto trading firm in the world, Deters and McCourt from exchanges that have moved quickly and with some innovation to launch the first crypto futures, Kraines as messenger for a long-standing service provider that has transformed itself over the past several years and is now taking steps to connect the inefficient crypto ecosystem, Collins who previously led an “old world” exchange but now has bold plans that include societal as well as business impacts, Bauerschmidt who represents one of the preeminent new market providers, and Grede with a grand and expansive plan that touches on the full lifecycle of cryptoassets. All of them old, in a sense, but not tired. Definitely not tired.
On to Day Three
Thursday is the third and final day of Boca and features a 1-on-1 with bitcoin pioneers “the Winkelvii” as well as panels on clearing, Washington, and fintech. Look for an update on day 3 and the conference as a whole by next Monday.
