When it comes to trade associations, few fields are as well served as the futures industry is with the Futures Industry Association (FIA). Outcomes-focused, professional, and relentlessly innovative, the FIA doesn’t kowtow to the biggest exchanges or banks (generally, anyways) and maintains a strong international presence that is backed by their consistent integrity. These qualities were on display as they hosted a Washington Outlook panel in Chicago. 

Led by FIA President Walt Lukken and featuring Jimmy Ryan of Avoq and Kyle Glenn, head of Government Relations for the FIA, the conversation focused in large part on the upcoming U.S. elections, but the most valuable portion of the event, besides the opportunity to network with our industry peers, was Lukken’s opening remarks.

Lead with the Chicago Fire

Lukken began his remarks by noting that it was 173 years ago that the Great Chicago Fire occurred, killing approximately 300 people and wiping out nearly all of Chicago’s downtown. Legend had it that the fire was begun by a cow owned by Mrs. O’Leary, a myth long since debunked, and Lukken compared the blame placed erroneously on the cow and Mrs. O’Leary to the way that the futures industry has often been incorrectly labeled as the source of market disruptions like the 1987 crash or 2008 financial meltdown. Both the cow and the futures industry have been victims of a bad rap.

From there, Lukken broke his remarks down into three areas: pillars, challenges, and mentions.

Within pillars, Lukken touched on growth, competition and modernization. 

• This is the 7th year running that the industry has experienced record growth, and while an explosion of retail business in India and elsewhere accounts for part of that, the broad based growth can be marked down to the benefits of standardization, accessibility, and ability to hedge risk. 
• Competition is also strong, sometimes in long established product areas like interest rates with the launch of FMX or energy markets, but also with the renewed interest in establishing new FCMs.
• Modernization is displayed in a collective effort to address long-standing inadequacies in the middle and back office, with both standards setting efforts by DMIST and tokenization being examples of how technology is driving positive change.

As for challenges, the three areas mentioned were cost, geopolitics, and disruptive technology.

• In short, the cost of clearing is expensive and it’s getting even more so. Not only is it expensive to scale but capital costs may be rising as well. (More on that later.)
• It should go without saying that elections as well as conflicts in both Ukraine and the Middle East that could explode into bigger wars are potentially destabilizing. While the futures industry is well built to withstand shocks, the effect of large shocks is hard to predict.
• Technology is enabling new hybrid forms of business but just because it is possible to do something doesn’t mean that it’s necessarily a good idea. Case in point is the collapsing of multiple functions like clearing, trading, and risk management into one legal entity can be problematic, as FTX showed us.

Finally, for mentions, Lukken talked about bank capital, Treasury clearing, and DMIST.  

• Bank capital will hopefully be a disaster averted. The initial version of the so-called “Basel End Game” capital proposal included requirements that amounted to a punitive tax on clearing when the stated goals of financial reform have been to encourage it. Hopefully, the regulators have recognized the errors of their ways and the final rules will be more logical.
• Big changes are coming to Treasury clearing and both SEC Chairman Gary Gensler and Treasury Secretary Janet Yellen have wisely subscribed to a new model that emulates the best features of the futures model. Changes to the functioning of this market are likely to be profound.
• DMIST is a pan-industry standards setting group that has been tackling some of the most stubborn, intractable issues facing the futures industry. After beginning with give-ups and average pricing, DMIST will continue to bring together the diverse elements of the industry to address challenges that are universal to all participants and, in the process, promote further stability and growth.

And the winner of the 2024 U.S. elections will be…

Fortunately, Lukken, Ryan, and Glenn didn’t go there. However, their thoughtful comments and insights highlighted yet again how the FIA is an important conduit for ideas and dialogue that benefits everyone in the futures trading industry. In that sense, we all win.