Boca Bits — FIA Boca 2019 Day Two

Originally published March 14, 2019 in the John Lothian Newsletter.

If regulation is your thing then day two of FIA Boca was sure to be a treat for you. CFTC Chairman Chris Giancarlo kicked it all off with his “farewell, not goodbye” address and the exchange leaders followed with Exchanging Views. Jackie Mesa’s panel then returned to old ground (with less fireworks this time) in “Keeping Markets Cross Border”, Interactive Brokers Chairman and CEO Thomas Petterfy sat down for a sometimes wild and wooly one-on-one interview, and the rousing induction ceremony for the 13 new members of the FIA Hall of Fame finished things off. Not a bad day at all.

Saying “farewell” to Chris

CFTC Chairman Chris Giancarlo

Boca 2019 marked the last time that CFTC Chairman Chris Giancarlo addressed the industry as his term expires this year and he handled the occasion in style — and even displayed a bit of sincere emotion in his final remarks. While it wasn’t a recitation of tasks accomplished during his chairmanship, Giancarlo did travel over familiar ground as he emphasized enforcement (“gusto and discipline”), cross border equivalence (“comity not uniformity”) and fintech as embodied in LabCFTC (“a category killer”). There was time for one question following his remarks and someone in the audience asked him to name a highlight from his time at the CFTC. Without hesitation he cited the recent progress in setting standards for credit defaults swaps (CDS). In this case, the agency got out in front of the problem and worked with the industry to craft rules, something he compared to preventing an accident instead of standing by watching a car crash and then calling an ambulance. To him, this shows that Washington can work. At that point he seemed to choke up just a little bit as he said “I don’t want to say goodbye, let’s just say farewell” and left the lectern to a standing ovation. His successor will have massive shoes to fill.

Exchanging Views with exchange leaders

Walt Lukken leads the Exchanging Views panel with (l-r) Thomas Book, Terry Duffy, Adena Friedman, Loh Boon Chye, Jeff Sprecher and Ed Tilly

A staple for the next morning slot is the exchange leaders panel. Walt Lukken moderated as Thomas Book of Eurex, Terry Duffy from the CME, Nasdaq’s Adena Friedman, Loh Boon Chye from SGX, the ICE’s Jeff Sprecher and Ed Tilly of Cboe Global Markets kicked it around on the topics of competition, Brexit, blockchain and cryptocurrencies, ESG and diversity (the latter two being big topics of conversation on many panels) and more. Highlights included:

  • Terry Duffy repeated the theme from the previous day as he emphasized FX as one area where the exchange and customers will gain as they merge their futures and cash businesses (WARNING! Acronym bomb: NEX EBS OTC FX).
  • Jeff Sprecher described ICE as a database operator and said that they look for opportunity where they can improve in that discipline. Examples include U.S. housing mortgages, fixed income, and blockchain through their pending exchange, Bakkt.
  • Adena Friedman burnished her tech bona fides, citing Nasdaq’s activity in the gaming and crypto spaces, often as a provider, not an operator, of technology. She also delivered a coherent grasp of blockchain, both in terms of a realistic time frame for adoption and the belief that blockchain will be “an evolution, not a revolution.”
  • Loh Boon Chye made the best case for competition and displayed a quiet confidence that belies SGX’ market leadership in APAC as he commented that partnerships have the possibility for the sum to be greater than the parts.
  • Ed Tilly joined what has been a chorus of many voices in calling out the absurdity of bank capital requirements that are penalizing low-risk carrying market makers and doing severe damage to market liquidity in the process. (When will this madness end?)
  • Thomas Book displayed a bit of humor when asked about Brexit, saying that being on “the inside” was no help at all in figuring things out and that it all seemed very much like a divorce — no one knows what the hell is going on and emotions can run high. Book also did a good job with crypto as well, which the exchange is embracing with three cryptocurrency futures (BTC, ETH and XRP) to come soon and blockchain-based securities lending later in 2019.

Run from the border

Regulatory cooperation, often referred to as equivalence, was a hot topic last year and it was hot in the very real sense as feelings ran high and rough words were exchanged. The issues were the same this year but the rhetoric was toned down considerably as FIA’s Jackie Mesa led a panel with Finbarr Hutcheson from ICE, Boon Ngiap Lee of MAS, Jochen Metzger from Deutsche Bundesbank, Virginie Saade of Citadel and CFTC Commissioner Dawn Stump. The issue is Emir 2.2 and the EC has not altered course in its wrong-headed proposals that run counter to the “comity not conformity” that Giancarlo mentioned. Commissioner Stump cautioned Metzger as the representative of EMIR 2.2 to not make the same mistakes that the CFTC did under Chairman Gary Gensler. In that case imitation would be the sincerest form of insanity (I bet Stump wishes she thought of that one but I made it up myself.) Hutcheson was particularly strong as he said that it is easy to say that there will be costs without acknowledging that customers will have to pay for them and that “too many hands on the steering wheel” in a time of crisis would be disconcerting. This prompted an assurance from Metzger that only those who put up the capital will have their hands on the wheel in just such a situation. Perhaps there is hope yet. In fact, a poll of the audience revealed that approximately 60% believe that market fragmentation caused by regulation “has always been there and will always be there”, which is encouraging and depressing at the same time.

One-on-one on edge

Jane Gladstone of Evercore goes one-on-one with Thomas Petterfy

No one can deny Thomas Petterfy’s genius in amassing billions of dollars as the founder of Interactive Brokers nor the powerful message of immigrant success that began with a chewing gum distribution scheme that netted 250% returns. (As a twelve year old student in his native Hungary he bought individual sticks of Juicy Fruit gum for two cents and then cut them into five pieces and sold each piece for a penny.) But this experience seems to have scared his psyche as well because the dressing down he received from his school principal who found out about his money making scheme and questioned where his “socialist conscious” was left him with vehemently bitter neo-libertarian beliefs. He decries increased regulation as a backdoor to socialism but, ironically, complains about market conditions that led him to shutter his market making operation in 2016. He harbors a particular animus for fellow Hungarian success story George Soros, going as far to say that Soros’s beliefs are the result of a conviction that the socialists will ultimately prevail and he wants to be the last one that they come for. Personally, I prefer Soros hands down. Still, Petterfy finished by saying that he would like to be remembered as “someone who brought technology, efficiency and honesty to markets” and no one can argue with him on any of those points.

There’s a Hall of Fame?

You ever have one of those discoveries where something was the there all along but you somehow managed to never notice it? Sort of like the closet off the bathroom at your office or the flowering tree on the corner of the street where you live. That’s what the FIA Hall of Fame was to me. I swear: I’d never heard of it before. Thirteen new members were inducted this year, bringing the total to 144 inductees since the HoF was created in 2005. Congratulations to them all, particularly the new members for 2019.

Walt Lukken presents a Hall of Fame trophy to Kim Taylor as the other inductees look on

Into the home stretch

Thursday is the final day of Boca 2019 and the FIA has trimmed the schedule in recognition that the final day of a conference is always smaller and more low key than the other days and so that a round of golf can be squeezed in during the afternoon instead of on Friday morning. There will be a lot to talk about with an emphasis on politics and blockchain on tap. A recap of the final day and a synopsis of the conference will be released on Monday, March 18. Hang tight and you’ll get the deets.