FLASH FRIDAY: IDX and the Platinum Jubilee

Queen Elizabeth II acceded to the throne before the FIA was founded in 1955.

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.

FIA, the trade organization for futures, options and centrally cleared derivatives, returned to holding its annual IDX conference in London in person this week. The event took place just after the UK had a four-day holiday to celebrate the Queen’s Platinum Jubilee. To put that into context, Queen Elizabeth II acceded to the throne when her father died in February 1952, even before the FIA was founded in 1955 in New York as the Association of Commodity Exchange Firms.

The UK has been used to having a female head of state for 70 years. So congratulations to Alicia Crighton, the FIA’s new chair and the first woman in the role. 

Crighton, global co-head of futures and head of OTC and prime clearing businesses at Goldman Sachs, has been on the FIA board since 2018 and became vice chair in 2020. She is also the FIA’s representative on the CFTC Market Risk Advisory Committee and was instrumental in launching FIA’s board-level diversity initiative in 2019. 

She was on a panel at IDX that discussed market trends including the proposal from FTX, the US-regulated crypto venue, to change the margin process for crypto exchange-traded derivatives.

FTX US Derivatives has applied to the Commodity Futures Trading Commission to offer central clearing of margin products directly to retail customers. The proposal includes using a real-time margining system combined with an auto-liquidation feature for under-margined customers and a self-funded guaranty fund to stand behind large losses. It would also replace the traditional distributed risk clearing model involving futures commission merchants (FCMs) with an automated and centralized process that does not use intermediation – which has been opposed by derivatives exchanges and clearinghouses.

Crighton took part in a CFTC roundtable to discuss the proposal in May 2022 and said at IDX that the proposal could ultimately lead to a middle ground and a hybrid model.

“Should we be forced to change ? Yes,” she said. “However, do we have the right regulatory structure for this model and if we take out FCMs will there be sufficient asset protection ?”

Walt Lukken, president and chief executive of FIA, said he was surprised that the FTX US proposal was receiving so much attention in Europe. 

Robert Booij, chief executive Europe at ABN Amro Clearing Bank highlighted on the panel that the FTX model is already being used in Europe. For example, the eToro investment platform offers contracts for difference to retail investors and uses auto-liquidation.

Gary Saunders, managing director, global head of prime derivative services at Barclays Bank, described the FTX proposal as fascinating but added that it provides more questions than answers, especially if it involves the institutional market. 

“Clearing has worked well for a decade,” added Saunders. “There are opportunities to improve but that will involve evolution, rather than revolution.”

Lukken continued that the FTX proposal is part of a larger trend of technology revolutionizing the infrastructure of derivatives markets.

“We can all agree that markets benefit from faster settlement of trades and margining, using safe and secure networks,” he added. “Time represents risk—risk that prices change, operations fail, or counterparties renege.”

In addition to digital assets, Lukken highlighted commodities and sustainable products as growth areas. He is bullish on growth as FIA data shows that 2022 is likely to be another record year for exchange-traded derivatives volumes. 

He will be hoping this level of activity continues until the FIA celebrates its own 70 years in 2025.