Originally published March 18, 2019 in the John Lothian Newsletter (http://johnlothiannews.com)
The final day of FIA Boca is always the “poor relation” when it comes to content and attendance and that was further exacerbated this year as the golf event was moved from Friday morning to Thursday afternoon, prompting a lighter agenda and smaller crowds for the final conference sessions. Still, the final day covered the extremely topical subjects of politics and cryptocurrency/DLT so there was a lot to talk about.
Overall, FIA Boca was a bit smaller this year and the bitcoin frenzy that permeated 2018 is a thing of the past but conference attendees voiced confidence and optimism regarding the state of the industry and generally reported that the business climate at FIA Boca was as good as it has been in years.
Starting off with politics
Following an opening address from Benn Steil (more on that below), Walt Lukken led the “Where Politics and Markets Meet” panel as he was joined by Brian Quintenz from the CFTC, Julie Bauer of OCC, LSEG’s Jonathan Jachym, Virginie Saade from Citadel and Ali Wolpert of DTCC. Quintenz kicked off by singing the praises of Chairman Giancarlo (there was a lot of that going on at Boca) and then describing his three key priorities: actions focused on risk rather than politics, harmonization, particularly with the SEC, and technology in his role as sponsor of the Technology Advisory Committee (TAC).
From there the panel was pretty much how you would expect it to be from professionals that peruse politics: general yet informative and optimistic yet vague. Lukken ended the session with a series of “yes/no” lightning round questions which revealed that most think that there will not be a hard Brexit, Heath Tarbert will not be confirmed as a new CFTC commissioner by Memorial Day and two of three respondents predict that Donald Trump will be reelected. That same question was posed to the audience via an online poll and 70% said that Trump will not be reelected. We shall see.
In the future, the FIA should consider getting Lukken out of the moderators seat because he has an ability to come up with the most pithy and provocative turns of phrase. For example, he said that if regulation in the U.S. is like chess then it’s more like 3-D chess in Brussels and he compared the race for the Democratic party presidential nomination in 2020 to the Hunger Games. Good stuff.
Getting to crypto, finally
I suspect that the FIA held off on talking about cryptocurrencies, blockchain, and distributed ledger technology until the final day because the general perception is that this suite of technologies will transform the financial world. If the discussions of the two panels is any indication then that transformation is likely going to be some ways off in the future.
The “Blockchain From Pilot to Production” illuminated the more optimistic side of the story. Led by Brian Steele from Goldman Sachs, the panelists included Emmanuel Aidoo of Credit Suisse, Daniel Gorfine from LabCFTC, VAKT’s Lyon Hardgrave, Arjun Jayaram from Baton Systems, Jennifer Peve of DTCC and Axoni’s Greg Schvey. The panel detailed how blockchain is starting to move beyond POC but also revealed how there is still plenty of room left for fundamental disagreements about what it all means. On the first count, DTCC and Axoni are in the midst of substantive programs, including a re-platform of the DTCC Trade Information Warehouse, and Aidoo described how POC is too narrow of a term as pilots, pre-production, and production will show slow growth in 2019 with more significant flow in ’20 and ’21. The disagreement came largely from Jayaram and represented the healthy skepticism that should be applied to instances where blockchain is being applied. The concepts of “proof” that underpin trust, private versus permissioned and other important issues have yet to be settled and will play out in the next couple of years. In the end, however, the panelists agreed more than they diverged and this underscores a strong and growing body of work with blockchain by the financial services industry.
The Cryptocurrencies and Derivatives: The Battle for Dominance panel could roughly be broken down into three points of view: existing bitcoin products that are cash settled (Cboe and CME), proposed products that will be physically delivered (ErisX and Bakkt) and non-regulated cash platforms that offer trading, custody and other services of multiple different cryptocurrencies (Coinbase). The panel was led by Colleen Sullivan from CMT Digital and featured Ron Bernstein of Coinbase, Tom Chippas from ErisX, Cboe’s John Deters, Tim McCourt from the CME and Adam White of Bakkt.
Unfortunately, I had to “pay the bills” (take a client meeting) and was unable to attend the full session. From what I saw, the lines are pretty clearly drawn but I don’t know whether or not Cboe announced that they were suspending listing of new bitcoin futures contracts at the panel or later that day. Broadly, that news can mean one of two things: the exchange has either soured on cryptocurrency futures in general or else they are preparing to make a switch from cash settlement to physical delivery. I suspect that the latter will prove to be true.
A few words about the keynotes
FIA Boca featured two keynote addresses, one at lunch on day two and the other to kick off day three. The day three keynote featured author Benn Steil as he discussed his 2018 book “The Marshall Plan: Dawn of the Cold War”. His presentation preceded the politics panel and can, in my opinion, be seen as a direct refutation of the wrongheaded “America First” policies of the Trump administration. Steil detailed how the forward looking and inclusive policies embedded in the Marshall Plan contributed to 70+ years of peace and prosperity while, by contrast, the current path of conflict and a “zero sum game” mindset will undoubtedly lead to negative outcomes for the United States. Only those who are ignorant or are operating out of narrow political self-interest can disagree with that. He didn’t say that: I did.
The day two luncheon keynote was much more optimistic and represented a strong, common thread that permeated many of the panels: diversity and inclusion. Reshma Saujani is the founder of Girls Who Code, a non-profit organization with the goal of eliminating the gender gap in computer science. The group has reached over 90,000 young women since its founding in 2012 and spreads the message of “brave, not perfect” as a way to create bold change for society. Coincidentally, the FIA rolled out a diversity initiative at Boca and numerous panels dealt with the issue as well. Of note, Walt Lukken’s politics panel was the only one to achieve 50/50 gender balance and Jane Gladstone of Evercore Partners called out Thomas Petterfy in their one-on-one discussion, noting that his board of directors has no women members. Petterfy made a promise to add one woman to the board by 2021, which is a step in the right direction but hardly a bold move. For now, most panels measure their diversity based upon the number of men that don’t wear ties or sport colorful socks. Much more work is needed!
- The FIA Principal Traders Group (PTG) was particularly busy during Boca week, issuing four comment letters on matters facing the industry. In addition to opining on swaps counterparty disclosure requirements, three issues relating to the Swaps Execution Facility rule proposal and supporting the proposed move from Current Exposure Methodology (CEM) to the Standardized Approach for Counterparty Credit Risk (SA-CCR), PTG also came out strongly against the proposal from ICE U.S. to introduce passive price protection, otherwise known as a “speed bump”. You can find all of the PTG comment letters on the FIA PTG website.
- Regarding SA-CCR, I have scratched my head for years as to why such a wrong-headed and counterproductive policy is allowed to persist and this year it struck me that SA-CCR has a corollary in Daylight Saving Time (DST). The arcane practice that we call DST began over a century ago and persists despite overwhelming evidence that it not only fails to achieve the desired aim of lowering energy consumption but also leads to negative impacts like higher rates of auto accidents and heart attacks. Considering that there seems to be very little chance that DST will be thrown on the trash heap of bad human ideas where it belongs we can only hope that a sensible version of SA-CCR is adopted soon before the markets have a heart attack or crash. (Click the links to learn more about CEM/SA-CCR and DST.)
- Every year there are a few companies that have a seemingly outsized presence at Boca and appear to be the “ones to watch”. This year that list includes: Connamara, FreightWaves, Openfin, San Juan Mercantile Exchange, and VAKT.
- Clarification: The report from day one described HKEX as making their first appearance at Boca: this referred to their first time as a presenter of an InformationXchange session, not a first time at the conference. HKEX has been well represented at Boca for years and CEO Charles Li is too well known as a master of the analogy to be considered a newbie by anyone. That being said, I would wager that HKEX will not present an InformationXchange session is 2020 simply because they won’t need to. They are pursuing a careful and deliberate strategy of opening the Chinese financial markets to the world and one year won’t make that much of a difference in that plan. On the other hand, I won’t be surprised if they are the lead sponsor for the conference in ten years time.
That’s all from FIA Boca 2019. Please let me know if you have any questions or comments that you’d like to share.