A Power Duo to Start the Day
Following the ICE Power Breakfast (more on that later), the day’s sessions started off with a bang as Acting CFTC Chairman Chris Giancarlo and Digital Asset Holdings CEO Blythe Masters took the stage in succession. The result was a “Standing O” for Giancarlo and a sense of power and possibility from Masters. It was a great way to start the day.
The big news at Boca used to be a merger or acquisition from one of the big exchanges but this year one of the big announcements was President Trump’s much anticipated nomination of Chris Giancarlo to be Chairman of the CFTC. I’ve been pretty frank in my assessments of CFTC Chairmen over the past several years and I’ve made my respect for the clear-headed, business-focused approach shown by Chris Giancarlo (including my comments on his Dodd Frank white paper, first released at the 2015 Tabb Fixed Income Forum) pretty well known. Giancarlo began his remarks today with a quip about the seamless transition of power as a short, 50 year old, bald man takes the helm of the agency because, in fact, he and the last two CFTC Chairman (Tim Massad and Gary Gensler) all fit that description. Beyond physical appearance, however, the resemblance between the three couldn’t be more distinct. While Massad did a credible job to slow down and temper the regulatory freight train unleashed on the industry by Dodd Frank, the same cannot be said for Gary Gensler, who deviated significantly from the CFTC’s long tradition of collegial, principles based regulation with a regime that was in many regards highly prescriptive and overly aggressive. In all due respect, Gensler had a difficult task in the post crash world but with Giancarlo, the agency has returned to a more healthy and constructive stance. His remarks focused on fostering economic growth, enhancing U.S. financial markets, and rightsizing the regulatory footprint of the agency. He seemed to be genuinely moved when the audience gave him a rousing standing ovation at the conclusion of his remarks.1
Blythe Masters followed and she began by commending Giancarlo for remarks that she said the industry had been waiting to hear for 10 years. She half-seriously said that she might not have left the listed derivatives market if his speech had occurred several years ago.
Masters is the CEO of Digital Asset Holdings (DAH) and one of the most powerful financial executives in the world. (Note: I didn’t say “female executive”. She’s powerful. Period.) Masters had a long and illustrious career at JP Morgan, including the creation of credit default swaps, and her role at DAH puts her at the forefront of blockchain/distributed ledger technology (DLT). She is an eloquent speaker and she made a strong and plainspoken case for the possibility of DLT. To her way of telling, the industry is facing an existential threat with an environment characterized by constrained revenues, higher costs, capital constraints, and rising cyber threats and DLT can help in this environment. In making the case for DLT in equity markets, she said that the path from T to T+2 (trade to settlement) is “nothing but a world of pain”, and she later said that both margin and collateral processes of all stripes are ripe for DLT disruption. DAH is well into significant projects with ASX to replace their antiquated system and DTCC on repo and she believes that the case for DLT in general is “well past the tipping point”. Taken together, Giancarlo’s address and Masters’ interview with FIA head Walt Lukken was a great way to start the day.
Bring on the Exchange Leaders
A central feature to both FIA Boca in the Spring and FIA Expo in the Fall is the Exchange Leaders panel. In years past, Gill from CME, Sprecher of ICE, and Eurex’s Preuss engaged in rounds of witty banter, but Gill is now retired and Preuss has been replaced by Jeff Tesler, so the panel has taken on a new and somewhat less entertaining dynamic. Oh well.
The panel this year was moderated by Jane Gladstone of Evercore and featured Terry Duffy from the CME, Adena Friedman of Nasdaq, Singapore Exchange’s Lon Boon Chye, Jeff Sprecher from ICE, and the previously mentioned Jeff Tesler of Deutsche Boerse. Duffy started straight off with a quip as he asked Tesler if he would prefer to have the first crack at Gladstone’s first question: what is the future of cross border transactions? Tesler, who’s Deutsche Boerse looks to have seen its proposed merger with LSE crash and burn, politely declined. Gladstone attempted to stir things up a bit a number of times but the panelists, in large part, refused to take the bait. On the question of who and where Euro swaps would clear in 5 years, Tesler seemed to say “Eurex/Frankfurt” and “no comment” at the same time while Sprecher quoted Newton’s First Law of Motion2 and then praised Chicago, London, and Frankfurt in the same breath. Friedman was more bold and said that uncertainty in Europe might well drive Euro swaps clearing to either New York or Chicago. Gladstone then asked Duffy if it would be CME and Chicago and Duffy responded that “I’m not saying we’ll stay in Chicago”, a comment that he immediately walked back.
At the end of the day, Friedman came off as the most dynamic and bold among the exchange leaders. In addition to her comments on Euro clearing, she described Nasdaq’s considerable efforts with blockchain, including a just announced advertising exchange that will launch this coming Fall. Nasdaq is the exchange to watch at this point.
Afternoon Panels: Fintech and Not Regtech
The post-lunch panels featured fintech with the “Silicon Valley Meets Wall Street” panel and what sounded like regtech but wasn’t with the “The Relationship Between Regulation and Technology” panel.
The Silicon Valley panel was moderated by Nick Solinger from FIA and featured Mark Beeston of Illuminate Financial, Morgan Downey from Money.net, CME Ventures’ Rumi Morales, Scott Mullins from AWS, and David Thompson from NEX Optimization. In a nutshell, Downey was the fintech startup on the panel (and one that has won accolades but now needs to produce results) while Beeston and Morales are investors (Series A and Early Stage, respectively) and Mullins and Thompson are service providers. All were impressive in their own rights but none offered significant new insights. For me, NEX Optimization was the biggest discovery, as much as for what they do as a business unit as how they fit in with a truly impressive array of businesses that has evolved out of the former ICAP. (By the way, it’s pronounced “necks”, not “en-ee-ex”. CEO Michael Spencer went to great pains to explain that on more than one occasion). Finally, AWS once again demonstrated how they are far and away the dominant cloud provider for financial services. Unless they have any more big outages like they did last week!
The “not regtech” panel was led by Greg Woods from FIA and featured Steve Grob of Fidessa, Bill Harts from Modern Market Initiatives, the CFTC’s Dan Busca, and Lars Ottersgard of Nasdaq. The session could have easily turned into a “bash the regulator” session but Grob, Harts, and Ottersgard stuck to a constructive line of conversation and Busca, for his part, demonstrated the same spirit of cooperation and comity that Acting Chairman Giancarlo employed in his earlier remarks. Discussions regarding Reg AT were a good case in point, as Brusca noted that the comment period has been extended and that the Chairman’s thoughts on the matter are well known, particularly when it comes to the protection of trading IP. I am not the first to predict that Reg AT will be significantly changed at a minimum and possibly delayed for a long, long time. At the end of the day, pendulums usually swing silently but the pendulum swing in regulation as demonstrated today by Giancarlo and Busca was heard pretty loudly.
The U.K. Conservative Party Entertains at Breakfast and Lunch
A diner in attendance for meals at FIA could have easily felt that he stumbled into a convention of the U.K. Conservative Party as the ICE Power Breakfast featured The Rt. Hon. the Lord Hague of Richmond, former head of the Party, and The Rt. Hon. David Cameron, Prime Minister of the U.K. from 2010 – 2016 at the NEX3 Group Power Lunch. Given what we’ve seen in the past year, it’s hard to take professional political pundits at face value but Lord Hague and Cameron both had pithy insights to share:
- Cameron recounted that then leader Hu told him that it was good that Chinese didn’t have democracy because if they did they would “elect a farmer and invade Taiwan within a week”.
- Lord Hague said that migration was the deciding factor in the vote for Brexit and flexibility from the Europeans on migration quotas would have easily swayed the vote the other way.
- Cameron intentionally employed a small conference table for the G8 gathering in 2013 so that translators couldn’t sit at the table, making it more intimate for the gathered foreign leaders.
- Lord Hague predicted that Marine Le Pen will not win the upcoming French elections but cautioned that she will take the next election in 2022 if the next President of France doesn’t address the serious economic and social issues that face the country.
That’s a sobering thought.
On Tap for Tomorrow: Last Day of Boca Blues
Weekends have their Sundays, vacations their head home day, and every conference has a last day that lacks a little bit in both energy and pizzazz. The final day of FIA Boca features a keynote from Georgia Senator David Perdue and panels on clearing, liquidity, CCP risk, and a Washington outlook. I will take a few days to assemble those notes and final thoughts and send out a recap by next Monday. Be on the lookout!
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