FIA Virtual Expo — Day One
FIA Expo is the bellwether annual event for the listed derivatives industry and, like so much of our lives, it was forced to adopt a virtual format in 2020 in the face of the Covid 19 pandemic. Spread over three days, FIA has wisely chosen to scale the program back a little bit (Zoom fatigue, anyone?) while retaining the features that make it indispensable.
Early morning TED talk
The first day of FIA Expo began with a “TED” talk: Tarbert, Execution and Duffy.
CFTC Chairman Heath Tarbert took the customary first bite of the apple at Expo in what may be his last major presentation to the futures industry: his days may be numbered with a new administration coming in. There is no need to go into depth on his comments here given his proclivity for public speaking and the fact that his speech will soon be available on the CFTC website. That being said, he did share the unusual news that Congress fulfilled the agency’s funding request for 2021 and that a revision of bankruptcy rules and guidance on electronic trading risk are forthcoming. All in all, Tarbert completes a line of very successful chairman that began with Mark Wetjen, continued with Tim Massad, and then counted Chris Giancarlo. Together, this group was able to do what no other agency has accomplished: fulfill the statutory requirements of 2010’s Dodd Frank Act. It is now completed but not finished, as further adjustments will be made in the years to come.
From there, Larry Tabb of Bloomberg Intelligence expertly moderated a panel on “Execution, 2020 Style” with Alastair Hawker of Citi, John Rothstein from Optiver and Tracy Rucker-Wilson of Vanguard. They detailed ways in which the unusual market conditions engendered by the Covid 19 pandemic led to challenges and creative responses. Rucker-Wilson said that futures markets held up very well, particularly when compared to issues encountered in the cash Treasury market, but that liquidity was impacted, both as wider bid/ask spreads and in less depth of book. This led Vanguard to increase their usage of execution algorithms, a development that Hawker confirmed as well. Hawker pointed out that this included more types of algos that could better adjust to changing market conditions. In short, algos are evolving. For his part, Rothstein discussed how trying market conditions are exactly when an options market making firm like Optiver should be expected to shine but that didn’t happen without some challenges. Like Rucker-Wilson and Hawker, Rothstein discussed the challenges of the new WFH paradigm. For Optiver, it was important to enhance and expand their VPNs as the organization was stretched one step further from the office to people’s homes. Looking forward, Rucker-Wilson acknowledged that Vanguard will likely be less binary in the future when it comes to WFH and she believes that off hours liquidity in Treasuries is likely to improve. Rothstein agreed about WFH, noting that it allows them to recruit where they maybe couldn’t in the past, and wondered what will happen to interest rate futures and options as Libor winds down. For his part, Hawker mentioned that the closing of the trading floors due to the pandemic had a big, and what he believes will be lasting, change on the electronic trading of options.
The final speaker of the morning session was Terry Duffy of the CME, talking one-on-one with FIA head Walt Lukken. In a wide-ranging discussion that touched on the election, Covid 19 pandemic, negative oil prices, a financial transaction tax and new products, Duffy illustrated why his tenure as head of the CME has been so successful. A good example came as he commented on the liquidity stresses that markets encountered in March, particularly with regard to the Treasury cash market. Giving a clear headed recounting of how events unwound, he made a point to emphasize that he made clear to his team at the time that there would never be any circumvention of any risk protocols. That level of deep experience is so crucial in times of stress.
Two Strong Women and Climate Change in the Afternoon
The second half of the day was notable for the presence of two strong women, Hester Peirce of the SEC and Adena Friedman from Nasdaq, and concluded with a panel discussion relating to climate change.
Hester Peirce is something of an anomaly as a regulator. She has the bearing of an academic, the outlook of a visionary and an orientation toward common sense solutions that support innovation without sacrificing the SEC’s mission. While she is most well known as “Crypto Mom” for her interest in digital assets and cryptocurrencies, she also has strong opinions about the U.S. equity markets. Say what you will about our current market structure in the U.S. but no one in their right mind would design it the way it currently is if they were to start from scratch. Peirce hasn’t been able to make a big impact yet but, then again, neither did Chris Giancarlo when he began his time at the CFTC. Peirce’s impact may take years to be fully realized.
Nasdaq CEO Adena Friedman is the only female leader of a global exchange and one could argue that she is at the helm of the most diverse and complicated of all of the exchanges. Nasdaq is a technology company at its heart and Friedman expressed that she believes that both the cloud and machine learning will have the greatest impact on the capital markets in the short term and that distributed ledger technology will have a profound evolutionary, not revolutionary, impact in the long run. She stated that her personal story shows that a woman can succeed but she acknowledged that more needs to be done to enable positive diversity outcomes. This should include recruiting from more schools, promoting diversity with internships that also have an intention to hire, creating an inclusive training program with internal support systems, and being clear and deliberate with career development tracks. The industry is relatively early in these efforts but awareness has grown dramatically and trends are encouraging.
I have to admit that I did a miserable job of capturing the final panel of the day, Managing the Risk of Climate Change: The Role of Markets. Athena Eastwood of Wilkie Farr & Gallagher moderated with CFTC Commissioner Rostin Benham, Pauline Engelbarts from ABN Amro, William McCoy of Morgan Stanley and IncubEx’ Daniel Scarbrough filled out the panel. I was late to join as the Friedman one-on-one went a little long, was kicked off the event app when someone sent me a message, and was probably a little hypoglycemic after skipping breakfast and sitting through nearly four hours of Zoom screens. The efforts of both ABN Amro and Morgan Stanley both excede the expected and IncubEx is well situated to take advantage of opportunities in climate markets. Benham had an interesting comment to finish the panel: the housing bubble that led to the 2008 crash was missed as was the pandemic prep that could have diminished the impact of Covid 19. Let’s not miss the warning signs from climate change.
On To Day Two
Day two of FIA Expo features conversations with Michael Peters of Eurex and ICE’s Jeff Sprecher, panels on market fragmentation, lessons from the Treasury market and innovation in Brazil and Asia. I’ll also be highlighting the nine startups selected for the Innovators Pavilion and making my choice for who the winner of Innovator of the Year might be. Along with a keynote from technology maven Kara Swisher, it should be an action packed day. Stay tuned!