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The FIA, the trade organization for centrally cleared futures, options and derivatives, resumed holding its annual IDX conference in London in person this week. The event took place just after the UK had a four-day holiday to celebrate the Queen’s Platinum Jubilee. To put this into context, Queen Elizabeth II acceded to the throne upon her father’s death in February 1952, even before the FIA was founded in 1955 in New York as the Association of Commodity Exchange Firms.
The UK has been accustomed to having a female head of state for 70 years. Congratulations to Alicia Crighton, the new FIA President and the first woman in this role.
Crighton, Global Co-Head of Futures and Head of OTC and Master Clearing at Goldman Sachs, has served on the FIA Board since 2018 and became Vice Chair in 2020. She is also the representative of the FIA on the CFTC’s Market Risk Advisory Committee and was instrumental in launching the FIA Board-level diversity initiative in 2019.
She was part of a panel at IDX that discussed market trends, including the proposal by FTX, the U.S.-regulated crypto site, to change the margining process for exchange-traded derivatives.
FTX US Derivatives has applied to the Commodity Futures Trading Commission to offer central clearing of margined products directly to retail clients. The proposal includes the use of a real-time margining system combined with an automatic liquidation function for under-marginated clients and a self-funded guarantee fund to cover large losses. It would also replace the traditional distributed risk clearing model involving futures merchants (FCMs) with an automated, centralized process that does not use intermediation – something that derivatives exchanges and clearinghouses are all about. are opposite.
Crighton participated in a CFTC roundtable to discuss the proposal in May 2022 and told IDX that the proposal could ultimately lead to common ground and a hybrid model.
“Do we have to change? Yes,” she said. “However, do we have the right regulatory structure for this model and if we remove FCMs, will there be sufficient asset protection?”
FIA President and CEO Walt Lukken said he was surprised that the FTX US proposal was getting so much attention in Europe.
Robert Booij, Managing Director Europe at ABN Amro Clearing Bank, pointed out during the panel that the FTX model is already in use in Europe. For example, the eToro investment platform offers contracts for difference to retail investors and uses automatic liquidation.
Gary Saunders, Managing Director, Global Head of Prime Derivatives at Barclays Bank, called the FTX proposal fascinating, but added that it raised more questions than answers, especially if it concerned the institutional market.
“Compensation has worked well for a decade,” Saunders added. “There are opportunities for improvement, but it will involve evolution rather than revolution.”
Lukken continued that the FTX proposal is part of a larger trend in technology revolutionizing the infrastructure of derivatives markets.
“We can all agree that markets benefit from faster settlement of trades and margin, using safe and secure networks,” he added. “Time represents risk – the risk that prices will change, trades will fail, or counterparties will back out.”
In addition to digital assets, Lukken highlighted raw materials and sustainable products as growth areas. He is optimistic about growth, as FIA data shows that 2022 is likely to be another record year for exchange-traded derivatives volumes.
He hopes this level of activity will continue until the FIA celebrates its 70th anniversary in 2025.