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Lukken at IDX 2016: We need a balance between regulations and room for growth

Lukken at IDX 2016: We need a balance between regulations and room for growth

Walt Lukken's opening remarks at IDX 2016, as prepared for delivery.

Welcome to the 9th annual FIA IDX Conference!

I hope you enjoyed that photo montage.  One good thing about being head of the FIA is that I can infuse my musical playlists into our events.  Thank you for indulging me.

We closed the montage with two of FIA’s most familiar faces: Hugo Jenkins and Mary Ann Burns. Between the two of them, they have contributed nearly 4 decades of service to FIA and our members. They’re a part of our family, and we’re sad to see them leave.

But we’re excited for what’s next—for Mary Ann and Hugo and for our organization. And next time you find yourself in Washington, make sure to stop by Old Ox—Mary Ann’s family brewery and now the official beer of the global cleared derivatives industry! 

As you can see, FIA is not immune from the massive amounts of change happening in our industry. 

Change is difficult yet inevitable. But FIA is well positioned to help members deal with the ever-changing landscape.

With our merger behind us, we are now ready to leverage our global organization by finding synergies in our global advocacy efforts, delivering improved conferences, and developing global standards and best practices that drive uniformity, compliance and reduced costs.

Our aim is always to find ways to help the industry do its job, whether that’s our documentation library, the many working groups that develop regulatory standards, or technology solutions from FIA Tech.

And, of course, we will continue to be a tireless global advocate for our members by continuing to work on the issues you most care about—whether that’s market infrastructure, cross-border harmonization, commodities, or the health and stability of our markets. 

All of this is being done to help our members as they navigate the changing marketplace.

Today my message is one of both opportunity and challenge. It is, admittedly, a mixed message.

I’ve been guilty of mixed messages myself recently.  Many of you know I’m from Indiana—home of the Hoosiers.  I’m a bit of a weekend warrior, and I play basketball as often as I can.  For a long time, now, I’ve had some pain in my left thumb and my right middle finger from basketball injuries.  My wife finally convinced me to go to the doctor to get them checked out, and he said that my finger needs to be in this brace for the next 8 weeks.  But my thumb wouldn’t benefit from a brace or surgery, so they’re leaving it alone. 

When I came home, my wife asked me how things went for me at this doctor’s office, so I gave her the thumbs-up with my left hand, and held up my middle finger on my right hand to show her my new brace. 

According to my wife, that particular mixed message wasn’t appreciated. 

As we consider the future of our industry, we’re also seeing some conflicting signals.   Right now, we’re innovating and creating exciting opportunities with new technologies, but we’re also facing the challenges of adjusting to new regulatory regimes and their costs.  We’re enjoying opportunities being driven by globalization and greater business efficiencies, and yet we’re facing tremendous uncertainty from geopolitical events outside our markets. 

Here in the UK, Brexit is causing a great deal of uncertainty – indeed UK regulators are not allowed to speak in public during this period – which is why you will not be seeing them on the program this year. We recognize that this issue has the potential to have significant impacts on this industry, and we will all be closely monitoring its outcome in the coming weeks.

Back in the U.S., we’re approaching what might be the most unusual presidential election in anyone’s memory.  This too will directly impact our industry—determining who will be the next CFTC Commissioners and influencing potential changes to Dodd-Frank financial legislation.

Those are the global political dynamics we’re facing. 

Looking at our own industry, there remains anxiety about the long-term health of these markets as certain key metrics give us cause for concern. With the exception of Asia, volumes continue to be depressed as the costs of these products rise. Eight years later, the amount of segregated client assets—a barometer for user engagement in our markets—still has not recovered to pre-crisis levels in the U.S. And the number of clearing members continues to dwindle while exchanges consider further consolidations.

The cause of these difficulties is, in large part, the challenge of meeting new regulatory requirements.

Collectively, we should all support smart regulations that incentivize healthy and safe markets. 

Unfortunately, so much medicine has been prescribed since the financial crisis that the health of the patient is now suffering. Regulators, not surprisingly, wonder whether the industry is “crying wolf” when they hear about these plights.

However, it’s worth remembering that the regulated and cleared derivatives industry was not the cause of the financial crisis. In fact, it was singled out by the G20 as a model for making the marketplace safer.

It’s time to ask ourselves whether post-crisis regulations are working as billed, and whether their effects on the markets are desirable.

Some policy makers, particularly in Europe, have begun to realize that over-regulation has the potential to harm economic growth and job creation. This has led to the EMIR review and the Call for Evidence to make sure we have struck the right balance between healthy risk-taking and market safety. This is indeed an encouraging sign.

My hope is that we are entering a period in which regulators and industry can find a better balance between protecting the markets and allowing for innovation and growth. 

In the coming months, there are a few issues that could serve as a tipping point on whether we can achieve this regulatory balance, including the Basel III leverage ratio, MIFID II implementation and enactment of automated trading rules around the world.  If not handled wisely, these three issues—added to existing regulations—could put this industry into a period of lethargic existence.

That’s why the theme for this year’s IDX is so important – Moving the Industry Forward.

We must find a way to work with regulators that engenders trust and collaboration.  The industry must play its role by setting high standards for itself and policing itself for bad behavior.  We cannot tolerate bad actors if we expect to gain back trust. And regulators must also understand that our goals are aligned. 

We want safe markets with clear and certain rules that promote healthy and fair competition.

That should be our collective goal.

With that in mind, we have an exceptional line-up in store for you of speakers and panels to consider these issues, with the aim to move us forward.  I am particularly pleased to be welcoming Paul Andrews, the new Secretary General of IOSCO, who will be providing our keynote address tomorrow morning.

I’d like to thank our sponsors for their generous support, which allows us to bring you these exceptional panels and speakers, as well as the exhibitors who are showcasing products and solutions to help grow your businesses. 

Please join me in a round of applause.

And be sure to download our improved “FIA Events” mobile app from either the iPhone or Google play stores with program details, delegate list, sponsor info and a venue map.

Another way to stay informed during the conference is to follow us on our new twitter handle:
@FIAconnect using #IDX2016.

Finally, if you haven’t already bought your table or ticket for the gala dinner, I am afraid you are out of luck because it is now sold out.  However, there are other ways to support Futures For Kids during IDX.

Bill Herder, head of our Asia region, has taken on the kilt challenge this year to fundraise for Futures for Kids. I have it on good authority that Bill has special-ordered a kilt that will keep those long legs sufficiently covered for the gala, so don’t let that deter you. Over the last 8 years, the IDX Gala has raised over 1 million pounds for Futures for Kids, and donations to the Kilt Challenge are critical to that effort. 

With that, I’d like to hand over the stage to Paul Hilgers, CEO of Optiver, to lead the exchange leaders panel on New Directions.







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