Perhaps it was too much to expect actual sunshine in Chicago during November, but amid the first signs of winter was a bright spot for the futures industry.
For after an enduring spell of regulatory pressure, declining volumes and increasing costs, a timely surge of volatility and subsequent trading activity in the US exchange-traded derivatives markets injected a wave of optimism throughout attendees at this year’s Futures Industry Association Expo in Chicago.
October’s trading figures represented record highs for the majority of US futures and options exchanges, with this year’s Expo providing the perfect platform to shout about their accomplishments. This was especially true for CME Group, which saw a whopping 40 million trades take place on 15 October, culminating in daily, monthly and all-time records for the exchange.
The group also reiterated that its record open interest figures point towards expectations of further volatility in the markets moving forward.
The October uptick provided a silver lining for the still-cloudy regulatory conditions, which continue to plague markets with uncertainty.
During the two-day conference, both US and European participants alike dared to hope that the current conditions could represent a change of fortunes after a turbulent few years.
More confidence could also be drawn from the refreshing new look of the US regulator the CFTC, with a new line-up headlining the conference for the first time.
Chairman Timothy Massad opened the proceedings aiming to shed light on his stance on key matters, after being described as ‘Obama’s mystery man’ due to a lack of clarity of his views on the derivatives reforms.
Massad reinforced his commitment to resolving the long-standing stalemate with the regulator’s European counterparts over recognising each others’ clearing regimes. The standoff is a major concern for the derivatives market, though Massad is devoid of any blame with the tension stemming from the previous office at the CFTC.
Massad also announced to a crowded audience that the Commission was set to use its powers to extend a deadline for the mandatory execution of packaged trades on electronic platforms in the US.
The new-look Commission appears unafraid to review and reverse some of the decisions of its predecessors, much to the delight of a market which often criticised the regulator in its previous form.
While the annual CEO leaders panel turned out to be rather mundane and focused largely on equities market structure and the credibility of the term ‘flash crash’, the heads of some of the world’s largest clearing houses were far more candid and provided an entertaining discussion, particularly with domestic rivals CME and ICE engaged in a verbal duel throughout.
Evidently the regulatory future for clearing houses was one area where October’s bright spell couldn’t shine its light. The amount of ‘skin in the game’ the central counterparties should commit was highly debated, with the clearing houses themselves unsure of how much is enough.
Meanwhile, the dwindling number of futures commission merchants left in the markets are concerned that increasing costs will be passed onto the FCMs, potentially further reducing the number which has dropped from 300 a few years ago to around 60 at present.
Basel III appears to remain the biggest headache for CCPs, particularly the leverage ratio which raises the bar for banks’ capital requirements higher than ever before. The panel agreed that the regulations relating to banking failed to take into account the effects of derivatives clearing.
So overall the mood was far more upbeat than in recent years at the FIA Expo, however the optimists may be urged to proceed with caution as dark regulatory clouds still threaten to spoil the markets rare ray of sunshine.