FIA Expo 2020 — Day Three and Recap

Day three of three is quite often the dregs of a conference as C-listers take the stage and delegates nurse their hangovers, pack their bags and slowly creep away. Like so much else in the new normal of Covid 19, those rules can be thrown out the window. In the case of the final day of FIA Expo, the morning was given over to innovation while the afternoon gave us a glimpse of what lies ahead in the future for the largest futures contract in the world. Read on to find out more and take in my final thoughts on FIA Virtual Expo 2020.

Crypto, Covid and Contracts

The day began with a look at 2020’s hottest topic in crypto: DeFi. With journalist and author Matt Leising moderating, Soona Amhaz from Volt Capital, Rumi Morales of Outlier Ventures, Kraken’s Thomas Perfumo and CFTC Commissioner Brian Quintenz defined and described the most important developments in the crypto markets and went a long way to answering the question: if DeFi is the future of exchanges then what is the future of futures? In reality, Morales burst that hype bubble right off the bat, saying that DeFi is simply an evolutionary step for capital markets, just as the move from floor to electronic trading was in the not too distant past. Amhaz talked a bit about the Chicago DeFi Alliance, which is bringing emerging DeFi practitioners together with leading trading and investment firms, including CMT Digital, Cumberland/DRW and Jump Trading. In most cases, worlds don’t collide, they cooperate. Perfumo brought a great perspective from Kraken as one of the leading crypto exchanges, where the wild west of DLT merges with the needs of risk management, security and regulation. Quintenz, for his part, illustrated that regulation needn’t be an impediment to innovation. In fact, it is part of the CFTC’s mandate to promote innovation as well as protect markets and market participants. The well-informed and broad-minded position displayed by the Commissioner is a good indication that future evolution will be both productive and beneficial.

The morning keynote was delivered by Dr. Kathleen Neuzil, Professor and Director, Center for Vaccine Development and Global Health, University of Maryland School of Medicine. In a time when science has been subverted and conversations are more often guided by ignorance, fear or partisanship, her clear and informed perspectives were a breath of fresh air. We should all give thanks that professionals like Dr. Neuzil are soldiering on and fighting the good fight that will help us all in the long run. Her final thoughts encouraged us to learn from our experience and invest in the basic science, particularly with coronaviruses, so that we will be better prepared when this happens again. Covid 19 is at least humanities third brush with a coronavirus so it’s reasonable to expect that it will happen again.

The final panel of the morning session focused on the retail side of the business. The trend towards small, mini and micromini contracts in “How Small Can You Go?” was led by John Lothian of JLN and featured Kevin Darby from CQG, JJ Kinahan of TD Ameritrade, Linette Lim from Phillip Capital and Tom Sosnoff from tastytrade. Conventional wisdom holds that futures are not a retail-friendly market but recent experience proves that this is not necessarily the case. While large institutions will always dominate futures markets and most retail investors will never become involved with these markets, there are numerous reasons to expect that retail will continue to grow. In addition to new products, the continued expansion of trading apps along with investment as exemplified by the purchase of TD Ameritrade by Charles Schwab and new exchanges like The Small Exchange point to accelerating growth.

One final exchange leader and a look at the future for the largest futures contract in the world

To round out the day, Ed Tilly of Cboe Global Markets gave us a look at their growth and priorities while the final panel of the day considered how the impending demise of Libor is affecting the short term interest rate market and what this might mean for the future of the world’s largest futures contract, the Eurodollar at the CME.

Like so many of his brethren, Tilly’s presentation illuminated the broad and expanding reach of the exchange. In addition to a focus on growing their presence in the equity markets in Europe, Cboe continues to expand the tools and solutions that they provide to the market, maintaining their role as a scrappy and innovative member of the world of listed derivatives.

The final panel, “Beyond Libor — What is the future of short-term interest rate futures?”, tackled a subject that can’t help but veer into the realm of boredom but did so in a way that was both informative and illuminating. Ken Monahan of Greenwich Associates moderated an all-star panel that featured Anne Beaumont of FKS&A, Umesh Garjia from Bloomberg, Richard Sandor of the American Financial Exchange and CME Group’s Ed Tilly. Long story short, the markets are evolving apace and it is highly likely that the future will feature several contract types where once the Eurodollar stood alone. Also, it’s going to get a bit ugly because so many important participants are way behind in taking the steps necessary to respond to the changing landscape.

And the winner is….

One of the highlights of recent FIA Expo’s is the Innovators Pavilion and the competition to select an Innovator of the Year. I was four-for-four in guessing the winner before missing the event in 2019 andI was looking forward to trying my hand at keeping a perfect score this year. Alas, I was done in by too much to do and not enough time to do it. Making a selection this year required sitting through nearly two hours of video presentations and I simply didn’t have the time. Rats! I hope to get back into the prognostication game in 2021.

That being said, FIA expanded the awards this year to include a first prize, second prize and people’s choice based upon votes from conference attendees. The three winners for 2020, along with links to their presentation pitches, were:

1. Riskfuel: selected as an “innovative solution to the challenges of derivatives valuation.”
2. OptionsAI: “based on the appealing design of its app for trading equity options.”
3. People’s Choice: Wematch, which “impressed attendees with its solution for modernizing the voice trading process for derivatives and other financial products.”

Final thoughts

Over the course of a three day conference there are always a few thoughts and ideas that pop up but don’t quite fit into the general narrative as well as some themes that emerge. Here are a few such items:

• Strong women: whether it was exchange leader Adena Friedman, scientist Dr. Kathy Neuzil, visionary regulator Hester Peirce, technology thought leader Kara Swisher or mission-driven Kate Maehr from The Greater Chicago Food Depository, women shone brightly at Expo 2020. The world is a better place when women win and Expo 2020 was a good example of that.
• Leaders are better together: something is lost when the exchange leaders are interviewed one-on-one rather than all together on a single panel. Distinctions are more easy to see when the leaders sit shoulder to shoulder and interactions reveal a lot about the relationships between the exchanges. In addition, the wit and wisdom of Charles Li from HKEX was sorely missed this year as well!
• Better in Dallas?: Talk of a financial transaction tax in New Jersey has caused a number of exchanges to consider relocating their match engines in the unlikely event that such a tax comes to pass. In their one-on-one conversation, Walt Lukken mentioned Austin, Texas as a possible destination but Terry Duffy was quick to point out that Austin is a center for development but Dallas is where it’s at when it comes to data centers. Food for thought.
• Walking the walk: climate change is getting the attention it deserves with new products and initiatives and one exchange leader literally put his money where his mouth is during his session. When it came time to whet his whistle, Eurex’s Michael Peters did so by drinking out of a glass of water instead of a plastic bottle. Little things count for a lot.
• Mind the middle: When there were issues with the Treasuries market and more in March, two items stuck out as problematic: procyclicality in margin calls and massive problems in the middle office. The former can be readily addressed through coordination and communication between CCPs but the latter is a tougher nut to crack. While processes at the time of trade (T) have largely been automated, a great deal of manual intervention is required to handle issues at T+1 and beyond. Simply put, unreconciled trades have a cascading effect when market turmoil persists and the longer it goes, the worse it gets. Industry attention and resources need to be focused in this direction to avoid market gridlock in the next market shock.
• My past write ups on Expo usually included a recap of the best pastries served between breaks, with nutella espresso bars leaping to mind as particular favorites. In a sad commentary on 2020, I had to make do with Halloween leftovers at home this year.

I’m pretty sure that all would agree that Virtual FIA Expo can’t hold a candle to the live, in-person version. While that reality has made itself apparent in our everyday lives during the Covid 19 pandemic, it is even more profoundly felt for a large event like Expo. Taken away is the opportunity to discover an exciting new vendor or product while roaming the tradeshow floor, make random connections during networking breaks, or being able to read between the lines from comments made by panelists. FIA Boca in the Spring seems like an extreme longshot at this point so let’s hope that we can get back to face-to-face collaboration with Expo 2021 next Fall!