FIA Expo 2015 — Day Two

Chuck Mackie
8 min readMar 11, 2019

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Originally published November 6, 2015 on the Maven Wave blog (www.mavenwave.com)

It’s a simple fact of life that the second day of an industry conference usually lacks the sizzle of the first day and FIA Expo 2015 was no exception. That is unless you consider the sizzle of the annual Great Chicago Steak Out that caps off the event each year.

Innovation in the Air

In addition to featuring an Innovation Pavilion of 20 top fintech firms in the exhibit hall1, one of the first panels of the day was Investing In Innovation. Moderated by Troy Henikoff of Techstars, the panel included Brendan Bradley for Eurex, David Rutter of R3CEV, CME Ventures’ Rumi Morales, Neil DeSena of SenaHill Partners, and Chris Sudgen from Edison Partners. Among the tidbits offered:

  • Sugden cautioned that a technology in search of a solution is far less likely to succeed than first defining an opportunity and then matching the best technology to take advantage of it. Areas such as artificial Intelligence or blockchain are areas that might succumb to the former rather than the latter.
  • Rutter is not a big believer in Bitcoin for financial services because it is created to serve markets where no trust between participants exists, while banks and other financial institutions already have billions of dollars invested in trust between themselves. Blockchain, particularly permissioned blockchain, on the other hand, may well be a big game changer.
  • Morales has led the CME’s effort to invest in fintech companies and she has a great deal of enthusiasm for a number of areas including artificial intelligence and ambient computing. In what is probably a good thing for the CME to consider, she mentioned that CME Ventures is not ignorant of the existential threats that some new technologies might ultimately post to the CME’s core businesses.
  • DeSena noted that change can be slow at first, as resistance from entrenched interests is encountered, but that can quickly change. This was seen when electronic trading confronted voice brokers in equity markets many years ago and it will likely be repeated in other markets. DeSena sees an east/west divide in the U.S. with the east entrenched and the west on the rise, both in terms of technology and capital.
  • Bradley laid out how Eurex and Deutsche Borse are aware of their role as a platform for fintech and they are altering their ways of thinking to be more open to opportunities and possibilities.

All in all, the Investing in Innovation panel was a good blend of real world and blue sky thinking from people both within and outside the derivatives community, a combination that delivered the right balance for a thought-provoking sharing of experience and ideas.

Down Into The Weeds: Clearing and Equity Options Markets

The middle of the day was taken up by expert panels on The Future of Clearing and Threats and Opportunities in Equity Options Markets. Both had a bit too much “inside baseball” talk for me but that might have been caused at least in part by conference fatigue.

The Clearing panel was moderated by Ed Pla of UBS and featured Sunil Cutinho from the CME, Matthias Graulich from Eurex Clear, Tom Hammond of ICE, Mike McClain at OCC, Martin Pluves from LCH.Clearnet, and Trevor Spanner of LME Clear. While there were many positive improvements to report, including expanded efforts to compress swaps OI, efficiency from enhanced portfolio margining, and coordinated and unified work with regulators, the overall message is that there are many serious issues facing clearing. Most importantly, impending capital requirements under Basel III will have perverse and illogical impacts on cost that will lower liquidity and disincent clearing, just when both are most needed. The good news is that these very intelligent individuals are aware of the issues in front of them and are doing their best to come up with the best possible solutions but the fact remains that these solutions are often workarounds that fail to address the core issues. One can only hope reason prevails before the next event that causes a clearing firm default because despite all the stress testing and planning going on, no one can reliably predict how the next crisis will play out. And there is always a next crisis sooner or later.

The FIA is going to need a bigger stage if one more exchange provider enters the US equity options space.

A good portion of the Equity Options Opportunities panel was focused on the efforts to craft standards for dealing with “obvious errors”. Pat Hickey of Optiver moderated while the exchanges were represented by Andy Lowenthal of CBOE, Kevin Kennedy from Nasdaq, Boris Ilyevsky of ISE, NYSE’s Steve Crutchfield, Shelly Brown from MIAX, BOX CEO Ed Boyle, and Kapil Rathi representing BATS. The good news on “obvious errors” is that phase one of the effort has led to a drastic reduction of up to 80% to 90%, even in volatile markets such as on August 24. However, round one of harmonization created situations where participants are gaming the new rules and a second phase of talks are likely to be more contentious, as they may infringe on policies that exchanges consider to be their competitive advantage. While everyone agrees that harmonization leads to more certainty for traders and more certainty is a necessary condition to grow liquidity, there are limits to what seven entities that operate thirteen exchanges can agree on and “obvious errors” isn’t the only area where this shows up. Further efforts at rationalization to address the extreme complexity in equity options markets may well be a case of one step forward and two steps back.

Down the Home Stretch: Cloud

One of the final panels of the day dealt with cloud and it was, in many ways, an endorsement of Amazon’s AWS as the clear leader and winner in this space. Adam Honore of MarketsTech led the panel as Drew Shields from TT, Jason Timmes of Nasdaq, Grant Cupps of OptionsCity, and Scott Caudell described their efforts and successes with deploying cloud solutions and technology. All four of these firms have primarily used AWS for cloud, in most cases with multiple products and services. As expected, early efforts have focused on business cases that are not latency sensitive, such as data storage, but there are clearly efforts to do more and more in the cloud if it makes sense. It’s quite striking how much AWS owns this space.

Representative from Trading Technologies, Nasdaq, OptionsCity, and Interactive Data discuss their experiences with cloud.

Final thoughts

After a couple of days of hotel coffee in windowless conference rooms, I’m left with a few stray thoughts:

  • Jeff Sprecher is still a rock star: he had a queue of at least a half a dozen reporters trying to talk to him after the Exchange Leaders panel. The recent acquisition of Interactive Data certainly helped but the fact remains that Sprecher once again is driving the narrative in the evolution of the industry, a streak that he has maintained for nearly a decade (2).
  • Don Wilson of DRW Trading had a great first day: FIA Chairman Walt Lukken gave him a role in a witty aside during his opening remarks, CBOE CEO Ed Tilly cited him and his work with Eris on cleared swaps as a prime example of innovation in his panel appearance, and Wilson himself received strong validation for his blockchain investments in his own panel appearance. Proving, once again, that it’s not bad being Don Wilson.
  • The hazelnut pound cake that was served during the Tuesday afternoon networking break was superb. I can’t stop thinking about it.
  • I was unable to spend enough time in the Innovation Pavilion but I did pick up some buzz and scuttlebutt on a few of the companies. The Innovators with the most positive buzz were Cassini Systems, Duco, Green Key Technologies, and Nuerensic. you can find links to check them and the other Pavilion participants out here.
  • The 800 pound gorilla that was not addressed in any of the panels that I attended was the conviction for “spoofing” by a federal jury this past Monday of trader Michael Coscia of Panther Energy. Comments I heard from Expo attendees included:
  • The fact that the jury returned a verdict in less than an hour will likely embolden federal prosecutors to aggressively pursue more cases.
  • It wasn’t a big surprise that Coscia was convicted because he was an extremely aggressive trader.
  • His conviction will make it harder for the CFTC and the exchanges to get cooperation in their own investigations. Prior to his conviction, Coscia and Panther had settled with the CFTC, paying a $2.8 million dollar fine and agreeing to a one year trading ban. While the jury in his trial was not presented with this information, it’s not unreasonable to expect someone who is investigated in the future to refuse to cooperate, lest they make themselves a target for the Feds.
  • “Spoofing” has always occurred in some form, even on the open outcry trading floors, and it always will. While the most egregious cases deserve to be stopped, it might be a slippery slope to figure out where the line between permitted and illegal activity is. In the meantime, market liquidity is likely to suffer as traders shy away from any activity that might be deemed to be illegal.
  • Rising capital requirements, costly regulation, and other factors have led to less liquidity in many markets and the Coscia conviction may further exacerbate that trend and that is bad for the market overall.
  • The Great Chicago Steak Out, the fundraising event that is held at the conclusion of FIA Expo, is a remarkable event. In the past several years, over $1.3 million has been raised to benefit the Greater Chicago Food Depository, making it a great way to make a contribution and put a capper on another successful Expo.
Hundreds of industry professionals attend the Great Chicago Steak Out to raise funds for the Greater Chicago Food Depository.

As always, thanks for reading and let me know if you have any questions or comments!

(1) I spent less time in the Innovators Pavilion than I would have liked. You can view the 20 companies featured in the hall here and read a little bit on the subject in the Final Thoughts section below.
(2)Full disclosure: I worked for Sprecher at ICE between 2002 and 2009 and I told him when I left that I would work for him again in a split second if he needed me!

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Chuck Mackie
Chuck Mackie

Written by Chuck Mackie

Chuck is a student of markets and writes on topics ranging from emerging technology to current events in financial services and beyond.

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