The Top Three Needs for Operational Resilience in Derivatives Markets: Takeaways from FIA IDX 2024

FIA IDX celebrated its 16th year in London last week and revealed an industry that was much like the previous year’s edition: dealing with continued global turbulence, racking up impressive volume numbers, and facing the challenge of perpetual regulatory expansion. Conference attendance was strong and a general feeling of optimism prevails but there are a number of challenges being addressed.

Here are a few takeaways from the event:

  • FIA CEO and Chairman Walt Lukken kicked off the event with remarks that used song titles as a framing device. Derek and the Dominoes, Marvin Gaye / Tammi Terrell, Thomas Dolby, Robert Johnson / Cream, and Adele (possibly) all got shout-outs as Lukken focused on some of the key issues facing the industry. Of particular interest were results from a newly released report from Acuiti and FIA that found that 53% of market participants believe that regulatory burdens are the biggest challenge for the derivatives business over the next five years. On top of that, 40% do not believe that EU regulations are proportionate to the risks of their activity. 
  • An audience poll conducted during the “Operations of the future in a digital world” also delivered some interesting stats. When asked to name the main areas of post-trade processing that require attention, the evergreen areas of allocations, give-ups, and average pricing (57%) were followed closely by data standardization / lineage (52%). While the former has received great attention through the work of DMIST, the latter has not. Data will require much more attention.
  • A second question in the poll asked which technologies will have the biggest impact on operational efficiency and cloud (20%) and low-code / no-code (20%) were dramatically overshadowed by AI (61%). No surprise there but, as is common so far, practical and market-ready AI solutions are in short supply, particularly for the back office.
  • In Europe and the UK, conversation about regulation is generally followed by even more conversation about regulation and 2024 is no exception. The EU EMIR REFIT began in April, the UK EMIR REFIT comes at the end of September, and DORA becomes fully operational in January 2025. With the EMIR REFIT, the number of reportable fields increases by over 57%, from 129 to 203 (204 in the UK) and DORA is a whole other matter, dramatically expanding requirements for operational resilience in ways that are new and unique. 
  • Given the survey results on data standardization and focus on increasing regulatory requirements, it should come as no surprise that operational resilience is at the forefront of objectives for many of the panelists. The DORA regulations mandate resilience and are going to put a microscope over best practices and bring to light the real world implication and risk of monitoring “important and critical” third party service provided for the regulated financial institutions. DORA can be viewed in essence as regulation by proxy of the financial technology service providers. We will have to wait until Q3 to begin to fully understand the effort and lift required. 

Responding to the Challenges

Whether it’s responding to regulations like EMIR REFIT and DORA, fulfilling the promise of AI, or boosting operational resilience the top three needs are data, data, and data. When it comes to meeting new and complex reporting requirements, ensuring the reliability of operations, or extracting reliable and consistent results from AI operations, data must be of the highest quality. There is no doubt that regulatory requirements will increase, just as it is certain that advances in AI will have profound impacts across nearly all areas of business. The best thing to do now is concentrate on making sure that all of your data is maximized to the greatest extent possible. This is a primary focus for BornTec for 2024 and beyond.

Andy Jennings is Director of EMEA for BornTec, a technology solutions firm that provides tools to support surveillance, risk, compliance, and regulatory reporting functions in financial markets. Contact us to learn more.


Challenges Ahead for a Healthy Derivatives Industry

FIA IDX in London is one of the bellwether events for the international trading community, and the 2023 edition shone a spotlight on an industry that is experiencing strong growth while simultaneously dealing with the challenges brought along by rising volatility and outside threats like cybercrime. The record 1,100+ attendees attest to the health of the industry while the topics discussed highlighted the many challenges that must be faced in order to maintain that strength. In particular, panels on the future of markets, operational efficiencies, and operations resilience highlighted key areas that are attracting the attention and resources of participants.

Top Challenges for the Derivatives Trading Industry

The derivatives industry is seeing robust growth but that growth presents challenges that must be met. Three panels, in particular, brought these challenges into focus:

  • The future of markets: After years of low-interest rates and relatively quiet market volatility, risk is back. As a result, there is a heightened interest in improving real-time risk management in order to gain an understanding of a true risk management profile. To achieve the best results and drive innovation, collaboration is needed across the technology and operations stack. 
  • Operational efficiencies: Operations is the backbone that drives risk discipline and it requires good data in order to map the risk landscape. There are automation gaps in derivatives markets that must be addressed and new technology approaches, including low code / no code automations, are assisting in these efforts. More standardization of data from exchanges and CCPs is needed because high-quality, reliable data is a necessity to be able to grow safely at scale.
  • Operations resilience: The ION Post Trade Processing ransomware incident makes it plain that it’s not a matter of “if” but “when” a cyber event will affect an enterprise’s operations. A top-down understanding of infosec is required, with constant training around a response plan required. Collaboration, internally and with partners and competitors alike, is key and the industry is making great strides in these areas.

Building on Trust in International Markets

Trending topics get the headlines but it’s the nuts and bolts issues that most accurately reflect where the hard work in the derivatives trading industry is being done. Crypto was the buzz topic in recent years, and that focus has now shifted to AI, but the lessons learned from the systemic stresses encountered during the Covid 19 pandemic and, more recently, with the ION Trading ransomware event indicate where the difficult challenges are being met. 

In his opening remarks at IDX, FIA President and CEO Walt Lukken emphasized trust as a key to industry success. Pointing out that trust is “gained over a long time but lost in a moment”, Lukken noted that “in global derivatives markets, we need each other more than ever to overcome challenges, understand our differences, and find collective solutions that benefit our markets – and the global economy as a whole.” Trust is the essential foundation on which success is built. In that regard, the international derivatives industry is in very good shape.

BornTec is a Chicago-based technology solutions firm that provides tools to support surveillance, risk, compliance, and regulatory reporting functions in financial markets. Contact us for a demo of our data resilience solutions.