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Dear FIA Members:
I want to thank you for your continued support of FIA during this busy and uncertain time and to provide you with a Midyear Update on FIA’s activities and advancements. FIA remains a committed global resource for our members—whether it’s advocating for open and fair markets, making the industry more resilient, or bringing our community together. We are here for our members and for the betterment of our industry.
This has been quite a year so far marked by a lingering Covid-19 outbreak, a US leadership change, and a messy divorce in Europe. In the US, FIA has been active working with the new Biden Administration and Treasury Secretary Yellen by articulating our priorities with the White House, engaging with new Administration officials, including former CFTC head and now SEC Chair Gary Gensler, and encouraging the President to expedite the nomination of the CFTC Chair. Recently, FIA hosted our annual Washington Policy Meetings with top officials to discuss these and other advocacy priorities.
In Europe, with the UK now having left the EU, FIA is engaged with regulators on both sides of the Channel to ensure that customers can continue to access the markets they choose. FIA is actively monitoring the ambitious regulatory agendas being pursued by the EU and the UK. We have worked with our members to submit our view on various proposals, including adjustments to EU and UK rules, equivalence, market data, Basel standards, sustainability, FRANDT and ongoing regulatory reviews in both jurisdictions. Undoubtedly, Europe is a regulatory hotspot, but FIA has you covered.
In Asia, China has published a landmark draft Futures Law that will give important legal protections to market participants inside and outside of China. FIA and its members submitted a response that applauded the draft Futures Law and offered constructive suggestions based on real-world experience from other jurisdictions. As a member of the China Securities Regulatory Commission’s International Advisory Council, I look forward to advancing our member’s priorities as this draft law moves to final passage and implementation.
FIA prides itself on representing our members around the world with a consistent message in support of open, transparent, and competitive markets. While this mission remains constant, our dedicated staff around the globe tailor this work using trusted regulatory connections and their unique understanding of both local cultures and legal frameworks. As they say, we think globally but act locally.
Here are just some of the highlights we have advanced on your behalf this year:
Opening Access to Clearing Venues Globally
The exit of the UK from the European Union has caused policymakers to revisit how customers access markets cross-border. There is a vigorous debate on whether clearing certain products must be done in the home country location for systemic risk purposes. FIA has also opposed any forced relocation of clearing services to the EU and has urged regulators to ensure that customers have a choice as to where they clear their transactions. In recent months, FIA has participated in the European Commission technical working groups on the “opportunities and challenges to transfer cleared derivatives from UK to EU CCPs” and coordinated industry advocacy efforts with the European Commission, European Central Bank and other central banks, finance ministries and national supervisory authorities in the region. This effort highlighted the financial, commercial, operational, and risk management implications for clearing members, market participants and CCPs of any forced relocation. This effort also stated the potential financial stability consequences for EU supervisors and highlighted proposed measures to improve financial market infrastructure on EU CCPs. FIA also participated in the ESMA roundtables for clearing members and clients on the assessment of UK Tier 2 CCPs this year, which focused on potential financial stability implications for the EU and the cost, benefits, and consequences of any potential non-recognition of a Tier 2 CCP.
Improving Operational Resilience
In March, FIA announced the formation of a board committee dedicated to working with a full spectrum of market participants on standardizing the end-of-day trade and clearing process. That includes customers, technology vendors, exchanges and clearinghouses as well as executing brokers and clearing firms. This multi-year endeavor seeks to create a more uniform operating system for the industry, streamline the clearing process and eliminate end-of-day bottlenecks. We strongly believe that modernizing the operating system will improve day-to-day efficiency and strengthen the resiliency of the derivatives markets during periods of high volatility. FIA’s global working groups and divisions have been working to identify workstreams and priorities for this initiative and we expect more announcements and developments in the latter half of the year.
Opening China’s Markets
FIA continued its years-long work with Chinese regulators by submitting comments to the National People’s Congress in support of the new draft Futures Law. FIA noted that this historic milestone will help to develop a more robust and liquid futures market for both Chinese and international customers. For many years, FIA has advocated for the passing of a futures law in China as a vital step in the development and growth of China’s markets. These markets already rank among the largest in the world in terms of trading volume, but they lack certain legal standards that are critical for deeper institutional participation. FIA made several suggestions for improvement of the draft Futures Law that includes the introduction of a statutory settlement finality concept, protection for the close-out netting arrangements between clearing participants and clients, requiring central clearing of OTC derivatives transactions, and the adoption of regulatory deference or substituted compliance between different jurisdictions in several areas. FIA is committed to working with the National People’s Congress, the China Securities Regulatory Commission, the Chinese Futures Association and interested parties in the development and implementation of this important new law, and the continued maturation of China’s futures markets.
Strengthening Central Clearing
FIA has continued to work with clearing members, clearinghouses and the international regulatory community to improve the resilience of CCPs and address the issues identified during the March 2020 market volatility. This effort included presenting FIA’s data and recommendations to regulators in Europe, Asia, and the Americas. FIA continues to emphasize that the clearing system performed well during the exceptional volatility of March 2020. However, margin models may need to be revisited due to the strain on liquid assets caused by sudden increases in margin requirements during this volatile time.
In February, the CFTC Market Risk Advisory Committee (MRAC) adopted a report containing recommendations on CCP margin methodologies, many of which were advocated by FIA. FIA board member Alicia Crighton of Goldman Sachs and Lee Betsill of CME Group co-chaired this margin work and led efforts to build consensus among various industry participants. FIA will continue to work on margin standards and other CCP risk issues to ensure that our markets can withstand shocks to the global clearing system.
Advancing Sustainability through Derivatives Markets
As the climate change issue moves from debate to action, FIA has been a leading voice supporting the role of markets in managing the transition to a low carbon economy. Since our industry’s beginnings, the listed and cleared derivatives markets have been utilized by farmers, manufacturers, and financial firms to manage risk and discover prices for commodities and financial products. Our markets provide a central forum to offset and manage risk over long-time horizons and determine the value of a given commodity, interest rate, or financial instrument. Sustainable products, like carbon offsets, are no different.
As such, FIA has been proactive in our engagement with members, policymakers, and regulators as we have seen an increased focus on this issue globally. In January, FIA joined multiple trade associations in developing principles for Financing a US Transition to a Sustainable Low-Carbon Economy. In April, FIA released two letters urging UK and EU leaders to start the process of linking the new UK Emissions Trading System (UK ETS) with the EU’s Emissions Trading System (EU ETS) as soon as practicable. FIA is also an active participant in the Consultative Group of the Taskforce on Scaling Voluntary Carbon Markets, which aims to develop a blueprint for how we improve and scale voluntary carbon markets that will be critical to tackling climate change. In June, FIA submitted comments to the Taskforce on its Public Consultation Report with the aim of leveraging the exchange-traded derivatives markets to scale these products.
Connecting Our Community
Throughout the pandemic, FIA has been dedicated to keeping this community together during these difficult times. We did this by adjusting to virtual conferences, offering more webinars, and increasing our communications. Here are some of the event highlights that we held virtually in the first half of 2021:
- FIA’s annual Boca conference in March attracted over 1,700 participants and 22 sponsors
- FIA’s Law & Compliance conference in April featured more than two dozen sessions and 17 sponsors
- FIA’s joint annual event with the SIFMA Asset Management Group in June and
- 18 webinars covering a wide range of topics from regulatory updates to industry volume trends
Of course, virtual conferences do not compare to being face-to-face with your clients and team members, so we are preparing to resume in-person events in the coming weeks. This fall, we are bringing back IDX – the International Derivatives Expo – in London and Expo – the Futures & Options Expo – in Chicago. We’re working closely with our venues, vendors, and legal counsel to provide safe environments for reconnecting with the derivatives community. We can’t wait to reconnect with our members in-person.
All of this would not be possible without the direct involvement of our members. We thank you for taking the time to participate in our conferences, working groups, committees, and divisions. FIA is proud to be your partner in connecting our community, finding solutions, and advocating for positive change for our industry.
Thank you for your membership in FIA. And I hope (and pray) to see you in the fall.
Sincerely, |
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Walt Lukken
President and CEO
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