There’s just no escaping the energy let down that comes with the second day of FIA Expo as the biggest stars appear on day one and the panels become either more specific or less on-point and, therefore, somewhat less interesting. Still, there was plenty of content to chew on with the FIA Innovation Award announcement and the WILD sponsored “Women Who Shape Fintech” as examples that point to a bright future for the industry.
CFTC gets the first word… again
Just as day one began with remarks from CFTC Chairman Massad, day two featured CFTC Commissioner Chris Giancarlo in a one-on-one interview with FIA CEO Walt Lukken. Like Massad, Giancarlo speaks with a calm clarity and focuses on business-driven solutions that will improve the markets for everyone. At the end of the discussion, he enumerated several forward-looking areas that highlight this: innovation and intellectual property, adapting analog era rules to a digital age, the precept that regulation shouldn’t slow innovation, and the need to address the effective implementation of rules for margin on uncleared transactions. As with Massad, one can only hope that there is a spot for Giancarlo as a CFTC commissioner under the next administration as well.
From there, Lukken stayed on the stage and moderated a Washington Outlook panel with U.S. Representative Rodney Davis of Illinois, CME Group Chairman Terry Duffy, Jimmy Ryan from Subject Matter, and DTCC’s Mark Wetjen. As with all aspects of the news these days the Presidential election dominated the conversation and the preponderance of unknowns made the conversation highly speculative. The biggest takeaway for me was a wish that more of our elected officials could display the common sense pragmatism displayed by Congressman Davis.
The final panel of the morning was New Realities for Exchange Leaders which was moderated by John Dabbs of Credit Suisse and featured Sunil Cutinho from CME Group, Adrian Farnham of LME Clear, Swapclear-LCH’s John Horkan, Michael McClain of OCC, Eric Mueller from Eurex, and ICE Clear US’s Hester Serafini. Unlike years past, there was little in the way of contentious sparring which is likely a result of the impending Armegeddon that is MiFID II coupled with clear lines of healthy, competitive growth. Some highlights:
- Horkan offered U.S. dollar inflation swaps and FX NDFs as promising product areas and emphasized how well LCH is able to apply the lessons that they’ve learned in clearing to the bilateral market.
- Cutinho for his part spent, a little time discussing CMBX, a real estate derivative, and FX products along with another shout out for the 10 Year Ultra Bond, which is easily the least heralded blockbuster futures contract in the history of the industry.
- In a discussion of “build versus buy”, Serafini talked more in terms of “build versus acquire” which is very much in the mold of how ICE has always done business.
- Farnham covered both the immediate future (bullion clearing) and a more visionary future (green energy) as LME Clear pushed the advantage of being the new kid on the block.
- Rounding things out, Mueller pitched the comprehensive T7 and C7 offerings from Eurex, McClain emphasize OCC’s broad and unique business and discussed some of the opportunities in clearing repo.
And the winner is…
In my Day One recap from Expo, I “went out on a limb” and predicted that Money.net would win the Innovation Award from the “Meet the Innovators” panel and my prediction proved prescient1. However, I don’t know if I was really going out on a limb that much because nearly everyone I spoke with before the award also picked Money.net to win. While this is no doubt at least partly attributable to the fact that they have a somewhat longer track record than many of their Innovation Pavillion peers, it’s also a testament to their compelling “Bloomberg killer” narrative. In any case, congratulations and good luck to Money.net.
Back to the panels, “The Evolving Equity Options Market” could have more accurately been called “The Consolidating Equity Options Market” and this fact was pointedly discussed by Shelly Brown of MIAX and Ed Boyle from BOX who are, for now, the odd men out as the three major exchange groups control 86% of the voting shares at OCC. Brown and Boyle were joined by Bryan Harkins from BATS, Andy Lowenthal of CBOE, NYSE’s Ed Brown, and panel moderator Steve Crutchfield from Chicago Trading Company – CTC. While the discussion covered interesting topics such as the CBOE/BATS deal and the continuing role for trading floors in the equity options market I couldn’t help but think that this panel will have less participants in 2017.
Heading for the homestretch, it’s women and algos
One of the highlights for me was the standing room only panel hosted by WILD2, “Women Who Shape Fintech”. It’s no secret that women are underrepresented in both financial service and technology so it’s a great idea for everyone to try and encourage and support women in fintech. WILD puts on a full roster of events throughout the year and this panel was an excellent example of what they do well.
The panel was moderated by Diane Saucier of Fitch Learning and featured powerhouses Lisa Erzol Curran from Perspicua Strategic Partners and FinTEx Chicago, Kim Trautmann of DRW Venture Capital, CME Group’s Julie Menacho, and Kristi Ross from Tastytrade/Dough. All of the panelists displayed remarkable candor in describing their challenges, successes, and failures, candor that would have been unlikely from a male panel. There was a great deal of discussion about taking chances in one’s career as well as how to successfully work with both a sponsor and a mentor. It left me thinking that I would have liked to have this type of advice myself much earlier in my career.
Someone has to go last and in this case, it was the BYO Algo panel. Chaired by Chris Zuehlke from DRW and featuring Rob D’Arco of Rival Systems, QuantConnect’s Jared Broad, Mike Ryan from TT, and Marcos Suarez of Qbitia, the panel explored the growing trend of DIY3 development of algorithmic trading programs. While the concept has been around for years (TT’s ADL comes to mind) the channels and forms of businesses that support algo development have expanded beyond EMS ISVs to include training & trading companies like TopStepTrader (represented in the Innovators Pavilion), freemium plans such as QuantConnect, and hedge funds like Quantopia4. One issue hanging over the segment is the looming submission and adoption of CFTC Reg AT and, specifically, the requirement that there is a repository that nearly all algo programs will be required to submit their “source code”. Not only is the definition of “source code” difficult to nail down but it’s also not clear who will be responsible for making sure that the code makes it to the repository. To be honest, it’s a freaking mess and it threatens to delay or derail many of the DIY algo firms. One more case where regulation is so wrong-headed that it’s impossible to see how any good can come out of doing it at all. What a mess.
At the end of the day, FIA Expo 2016 was an excellent view of the current state of the listed derivatives market. The industry still faces significant headwinds with looming lunacy from Basel III, MiFID II, and Reg AT adding further burdens to a business that already has issues with profit margins. However, the robustness displayed in Innovators Pavilion and on the trade show floor bode well for the future.
- I like an underdog story as much as the next guy so I was interested to hear from database vendor McObject about their recent experience in standards testing. In July of this year, McObject set a new record for performance against the STAC M3 standards only to be bested not long thereafter by a competitor. McObject was somewhere between bemused and perturbed to find out that the competitor’s solution was as much as 19x more expensive to implement and have subsequently found that their lower-cost solution is gaining traction with prospects. I like it when the little guy wins.
- This was the second year for the Innovators Pavilion and both the traffic to the booths and the general energy level of the exhibitors was higher this year. It helped that the cohort was boosted to 18 companies from 10 in 2015 but the quality of the participants and the maturation of businesses in the fintech space also played a part. Based upon conversations with the firms themselves and other conference participants, here are some companies to keep an eye on: Ubixi, Cloud9, MayStreet, UCX, and ChartIQ.
- I have been a big fan of the baked goods put out by the Hilton in years past and this time the apple cider donuts and particularly the Nutella infused sugar cookies (OMG!) did not disappoint.
- While I’ve mentioned this elsewhere, I think it bears repeating that U.S. Rep Davis and both Massad and Giancarlo are bright lights in a what is a pretty dark hour for U.S. politics. It’s good to know that there are intelligent people doing good work when there is so much general discord and negativity. And it’s also good to know they have a sense of humor as well: Davis, for one, didn’t skip a beat and pulled of a perfect Rodney collar grab/head roll when Walt Lukken slipped and called him “Rep. Dangerfield”.
That’s it for FIA Expo 2016. Thanks for reading and please reach out if you have any comments or questions.
1For those paying attention, I also used the somewhat unusual word “prescient” in promoting the Day One blog but I went a step further this time and linked it in an alliteration. You’re welcome.
2Women In Listed Derivatives
3Do It Yourself
4Quantopia is the 800-pound gorilla in the space. They raised an investment and pledge of $250 million in trading capital from former SAC owner Steven A Cohen in July 2016.