Chicago, IL – FIA President and CEO Walt Lukken today made opening remarks at the 34th annual FIA Expo. Mr. Lukken’s remarks, as prepared for delivery, follows:
Welcome everyone to the 34th annual FIA Expo in the city where the modern derivatives industry began—Chicago.
FIA Expo is our largest conference bringing over 4,500 members of our global community together to debate the issues of the day and experience the next generation of innovations that are the lifeblood of this industry.
This town and our industry are forever intertwined, sharing a common DNA to get the job done.
In his poem “Chicago”, Carl Sandburg called this town the “City of the Big Shoulders” describing the grit of its people and their willingness take on the great challenges of the day with determination, laughter and pride.
To quote Sandburg: “Come and show me another city with lifted head singing so proud to be alive and coarse and strong and cunning…Planning, Building, Breaking, Rebuilding.” It was the Big Shoulders of this city in which the modern futures industry was first launched 170 years ago this year with the founding of the Chicago Board of Trade.
In that span of time, the amount of change witnessed by this institution has been extraordinary: a civil war, world wars, political revolutions, the car, the airplane, the computer, and the Internet—industries built and destroyed, marvelous inventions created then surpassed.
Yet our industry has persevered.
We can only imagine the amount of change that our children’s generation will witness. We cannot and should not fear change.
It’s in the DNA of this great city and this great industry to put the weight of change on its shoulders and get to work on solutions.
Like Sandburg’s City that founded this business, our industry takes great pride in being the Planners, the Builders, the Disrupters, and Rebuilders.
This “can-do” optimism is imperative during times of great uncertainty like those we face today.
It is during these times that FIA serves as your compass to make sure our industry stays on the path of growth and innovation.
And simply stated, the mission of FIA is to support open, safe, and well -regulated markets globally.
This mission drives everything we do as an organization.
What does it mean to support “open markets?”
FIA has always been a staunch advocate for keeping markets free and accessible to customers to manage risk and discover prices.
Open markets improve competition, keep costs affordable for customers, and grow the economy.
Our markets are not defined by borders—they are defined by the ingenuity and determination of buyers and sellers—no matter their location.
To illustrate, FIA has polled several major exchanges regarding the percentage of their volume that comes from foreign counterparties.
The results are revealing:
- CME Group, for example, reports sizeable volume coming from outside the U.S., including 43 percent of its metals contract volume.
- ICE Futures US shows that approximately 47 percent of the volume in its agricultural business, which includes its coffee, sugar and cocoa contracts, comes from overseas.
- Eurex shows a vast majority of its volume come from outside the EU27 nations, including 81 percent of its bund, bobl and schatz [shotz] contracts.
- Brazil’s B3 has over a third of its rates, FX and equities coming from foreign counterparties.
- And Asia’s SGX tops the list with 90 percent of its equity derivatives volume coming from outside Singapore.
Our markets would wither without the ability to access customers cross-border and without a pragmatic approach to regulating these global transactions.
The good news is a commonsense model does exist.
FIA strongly supports the regulatory recognition model that has been the foundation of the futures industry for years.
In fact, this recognition approach has worked so well that FIA and SIFMA published a paper last December suggesting a parallel approach for swaps.
The CFTC was one of the first regulators to put in place a cross-border recognition approach.
Starting with foreign brokers in the 1980s and foreign boards of trade in the 1990s.
The EU also adopted this approach post-crisis by allowing home country rules to apply if the rules are deemed equivalent to EU laws and regulations.
This set the tone for many countries around the world as they implemented their reforms.
Despite this, some policymakers have moved away from this pragmatic approach in certain areas by imposing their authority on 3rd country exchanges, clearinghouses and transactions.
This divergence could lead to conflicting rules and multiple regulators overseeing our markets during a crisis.
The good news is we have a window of opportunity to reset the global approach to cross-border regulation.
It is imperative we get this right, especially with Brexit looming next March.
In his recent whitepaper, Chairman Giancarlo laid out a thoughtful roadmap to cross-border regulation based on the long-held principle of comity between nations.
This principle of deference can only be possible if nations agree to abide by the highest of international standards.
This moment in time provides an ideal opportunity to develop a commonsense approach to regulating clearinghouses, exchanges and transactions located outside their home jurisdiction.
Such an approach would avoid duplicative oversight without sacrificing important protections for markets and customers.
A great first step would be the EU reaffirming its equivalence decisions for third country infrastructures, and the US using its exemptive authority to recognize trading venues and clearinghouses located outside the U.S. that do not pose a systemic threat.
The stakes are incredibly high. Without common ground, we may find ourselves with fragmented markets and balkanized regulation.
That doesn’t benefit anyone, especially customers.
FIA’s mission also aims to support safe markets—whether it’s preparing our members before a crisis occurs, organizing our members during a market event or providing important lessons learned after the crisis has passed.
Much of the best work of FIA and its members involve preventing disruptive events from occurring in the first place.
FIA just concluded its annual disaster recovery exercise, which included 21 global exchanges and clearinghouses and 78 companies from 15 jurisdictions.
This isn’t sexy stuff, but it’s extraordinarily valuable.
FIA also has played an instrumental role during major market events of the last four decades.
Whether it’s Barings, 9/11, Lehman Brothers, MF Global or Super Storm Sandy, it was FIA that helped organize the calls, share critical information and bring the community together to get through the challenge.
Most recently, FIA has been working with NASDAQ Clearing to understand the recent clearing member default, and to determine what changes to risk management may be needed to prevent similar defaults from occurring in the future.
Once a crisis has passed, FIA works with its members to develop “lessons learned” recommendations.
After MF Global, FIA members developed a guide for protecting customer funds that has become the industry gold standard for safeguarding customer money.
Two weeks ago FIA, in partnership with NFA, announced an online training class called Safeguarding Customer Funds based on many of these best practices.
Whether it’s before, during or after a major market event, FIA is proud to be working with our members to make the markets safer.
Lastly and importantly, FIA’s mission aims to promote smart regulation.
Regulations must strive to be clear, proportional, and outcomes-driven.
Smart regulation does not mean more or less regulation, but the right level that allows us to keep our markets safe without stifling growth.
CFTC Chairman Giancarlo has taken several initiatives that support the smart regulation agenda—most notably Project KISS, which asks the basic question, “How do we achieve the desired public outcome in the simplest, least costly and most efficient way?”
FIA has joined with the industry to submit ideas on this initiative, and the CFTC has begun to implement several of these simplification ideas.
FIA also applauds the CFTC’s recent MOU with the SEC to find ways to harmonize their rules.
It is ironic that we have found ways to defer to foreign jurisdictions, but US regulators over the years have struggled to recognize the work of their sister agencies across town.
Whether it’s margin, single-name CDS, or duplicative reporting, there are many areas that would benefit from this harmonization effort.
Now that would be smart!
Another great example involves the application of certain capital charges to cleared trades.
Everyone in this audience understands that the clearing of a product mitigates the risk of that trade defaulting.
The crisis dramatically proved this fact and as a result, policymakers made mandatory clearing of swaps part of the G20 recommendations nearly a decade ago.
Unfortunately, the application of certain capital charges doesn’t properly measure the amount of risk that clearing poses to bank clearing members.
As a result, we have been in a multi-year advocacy effort with the prudential regulatory community to convince them that clearing mitigates exposure.
And now we are beginning to make headway.
As the FSB notes in its recent study, over 64% of clearing service providers state that the leverage ratio has a significant negative impact on clearing.
Armed with empirical evidence, the Basel Committee recently announced it will consult on possible changes to the leverage ratio to minimize its impact on client clearing.
We also understand that US prudential regulators will soon introduce a new methodology for the calculation of capital. This will be a smart and safe approach that will reduce the cost of clearing for our markets.
Whether it's smart regulation, safeguarding our markets or keeping our markets accessible, FIA’s mission is a constant in an ever-changing world.
I am proud to be a part of a “big shoulders” industry that doesn’t shy away from challenges.
I am confident that over the next two days, this community will roll up its sleeves, vigorously discuss the challenges that face us and depart with a better understanding of how we might fix them.
With that, we have a great program ahead of us. Over the next two days, you’ll be hearing from four of the five CFTC Commissioners, including its illustrious Chairman.
You will also be hearing from exchange and clearing leaders, and experts discussing cryptocurrencies, FinTech, Brexit and the important topic of increasing diversity in our industry.
We are also excited to hear from our luncheon keynote—best-selling author Jeremy Heimans—who will tell us about his book “New Power” and how businesses can stay ahead in this hyperconnected world.
We also hope you will visit the Innovators Pavilion in the Silver Hall.
Now in its fourth year, this award-winning program features fintech startups that are offering forward-thinking solutions for the global derivatives markets.
FIA is proud to provide an “on-ramp” for these innovative companies into our industry.
We also take pride in the charitable work we do at all our conferences through the award-winning FIA Cares initiative.
The people of this industry are incredibly generous and always give back to the less fortunate.
At Expo, we are proud to partner with local steak houses to sponsor the Great Chicago Steak Out.
This event supports the Greater Chicago Food Depository, which helps feed one-in-eight-people living in Chicago.
To date, we have raised over $3.8 million and this year I hope we will shatter the $4 million mark!
Lastly, before we kick off the program with our first speaker, I would like to take this opportunity to thank all the sponsors and exhibitors of Expo 2018.
Without their support, Expo would not be the success it is today.
And now it is my pleasure to welcome back to Expo CFTC Chairman Chris Giancarlo.
As you know, Chris has guided the CFTC with distinction and purpose during his time as Chairman and commissioner.
Our industry benefits from Chris’ extensive background and experience in the markets, and his thoughtful and collaborative leadership at the CFTC.
We also appreciate his commitment to bipartisanship including playing the banjo in a honky-tonk band led by Minnesota Democrat Collin Peterson.
Ladies and Gentlemen, please welcome CFTC Chairman Chris Giancarlo.