2020 YEAR IN REVIEW
Extraordinary circumstances call for extraordinary action. We delivered.
In 2020, the global cleared derivatives markets underwent an extraordinary real-world stress test as record-breaking volume and volatility prompted by the COVID-19 pandemic created disruptions to normal operations. All of FIA's members should take great pride in the role they each played, individually and collectively, to ensure that our markets remained resilient in the face of unprecedented events.
Like many of our members, FIA was forced to think and act differently over the last year. And though some of our workflows may have evolved, our top priority remains the same: serving our member firms to help build better, safer and more efficient derivatives markets.
In 2020, FIA helped our members respond to historic market volatility and volume as market participants shifted to working from home. We stressed the importance of temporary relief in the US, Europe and Asia to deal with the immediate impact. We worked with governments across the world to recognize critical employees in our industry as "essential workers" whose day-to-day jobs are important to the stability of the global economy. We also advocated for extensions in consultation responses so that our members would have the opportunity to ensure their views were reflected in evolving regulations.
FIA also helped provide the industry with essential information. That came through practical work such as developing a webpage dedicated to critical COVID-19 information and a shared contact list, as well as industry surveys to measure preparedness and response to the pandemic. We also moved FIA's conference programming to a virtual platform so our community remained informed, engaged and connected even as most people switched to working from home.
And, perhaps most importantly, FIA did all these things even as we continued to move forward on a long-term policy agenda to keep our markets robust, safe and efficient. Some examples of key 2020 work areas include the comprehensive review of MiFID II/ MiFIR legislation and the finalization of the EMIR 2.2 framework concerning the supervision of third-country CCPs in Europe, engagement with regulators in the UK and EU on the consequences and implications of Brexit, dialogue with regulatory and industry bodies in China as the nation continues to open its derivatives markets, and the long-awaited finalization of electronic trading risk principles in the US.
FIA has accomplished much in the last year on behalf of our members. Here are some work areas and specific actions that reflect the value FIA provided to our members in 2020:
Clearing is a core tenet of safe and sound derivatives markets. Through our various committees and working groups, FIA continued our long-term mission of shaping global CCP regulations through ongoing advocacy efforts in 2020. We also issued regular communications to members to keep them informed of new developments in the global clearing ecosystem, including the implementation of the EMIR 2.2 framework and cliff-edge risks around CCP equivalence related to Brexit.
In addition, FIA advocated successfully for improvements in the European framework for CCP Recovery and Resolution. And we engaged with members and regulatory authorities on proposed EMIR implementing rules to offer clearing services on Fair, Reasonable, Non-Discriminatory and Transparent (FRANDT) commercial terms with a view to ensuring that they are properly calibrated, tailored, balanced and targeted at the FRANDT objectives.
In 2020, FIA made a significant effort to highlight key successes and challenges that clearinghouses in our industry experienced as a result of the coronavirus pandemic to ensure our markets respond effectively to any future crisis. These initiatives included virtual roundtables and webinars on "lessons learned," as well as a comprehensive whitepaper on the impact of pandemic volatility on CCP margin requirements.
FIA also launched a CCP Tracker tool in order to provide greater transparency into the amount of risk in the global clearing system and the financial resources available to protect the system from losses.
Noteworthy FIA work:
- FIA issues white paper on the impact of pandemic volatility on CCP margin requirements
- FIA responds to EBA on draft regulatory technical standards under IFR
- FIA calls on Basel Committee to remove client clearing from credit valuation adjustment
- FIA CCP Tracker
- FIA supports ASX default management proposals
- FIA and ISDA respond to ESMA's "Draft Guidelines on common procedures and methodologies on supervisory review and evaluation process of CCPs under Article 21 of EMIR"
- FIA supports granting CCPs access to Federal Reserve deposit accounts
- FIA supports CFTC proposal on initial margin requirements for non-cleared swaps
- FIA and ISDA respond to BoE CCP operational resilience paper
- FIA and ISDA publish paper on non-default losses at clearinghouses
- FIA, ISDA and IIF comment on FSB paper on clearinghouse resolution and equity
- FIA and ISDA respond to ESMA's “First report for consultation: central clearing solutions for pension scheme arrangements (PSA)”
- FIA responds to EBA on draft regulatory technical standards under IFR
- FIA responds to FCA discussion paper on new UK regulation for investment firms
- FIA and ISDA position paper on the CSDR settlement discipline regime
As the transition period for Brexit drew to a close in 2020, regulators and market participants around the globe were forced to take a hard look at cross-border equivalence arrangements and risks to trading and clearing on derivatives markets. FIA was at the forefront of these efforts to provide regulatory certainty to market participants, offering public comments on a host of rulemaking proposals and highlighting overlooked areas that needed urgent attention.
In Europe, FIA was highly engaged on various parts of EMIR 2.2 revisions. These advocacy efforts included offering input on the criteria for tiering and classifying a third-country CCP as systemically important, and consultation on guidelines for the supervisory review and evaluation process of CCPs. FIA also engaged with EU and UK authorities on equivalence determinations impacting access to CCPs, trading venues and regulated markets.
In Asia, FIA staff worked on a cross-border agenda as the opening of China’s derivatives markets continued in earnest, with additional commodity futures becoming accessible from abroad and further reforms to the Qualified Foreign Institutional Investor regime. FIA also continues to participate in regional forums to discuss how China can build on these efforts, including those via the China Securities Regulatory Commission's International Advisory Council in Beijing. Elsewhere in Asia, FIA staff also successfully concluded a years-long effort to cap liability at CCPs in Japan and Korea. FIA hosted Vice Chairman Fang Xinghai of the CSRC as part of our FIA Asia-V conference to give our members greater insight into the regulatory dynamics of the region.
In the US, FIA continued to support a wave of rulemakings in swaps and cleared derivatives markets that supported cross-border deference. It remains a top priority for our organization to ensure regulators around the world avoid duplicative or conflicting rules and to encourage foreign jurisdictions to defer to home country regulators whenever appropriate.
Noteworthy FIA work:
- Brexit end game: State of lay for financial firms
- European Commission urged to issue equivalence determinations before end of transition period
- FIA submits response to FCA consultation paper on its approach to international firms
- FIA joins industry letter requesting extension to BMR third country regime transitional period
- FIA paper on the necessity, path and related issues of opening the financial futures market
- Joint trade association letter to APAC regulators on reciprocol business continuity plans
- FIA welcomes the decisions by EC on time-limited equivalence and ESMA on UK CCP temporary recognition
- FIA and ISDA support the European Commission’s equivalence determination for financial benchmarks in Japan
- FIA responds to ESMA’s MiFIR and MiFID consultation regarding third-country firms
- FIA responds to CFTC on cross-border registration thresholds for swap dealers
- FIA and ASIFMA comment on draft Data Security Law of the People’s Republic of China
- FIA commends European Commission for improvements to EMIR 2.2 Delegated Acts and stresses concerns about timing of equivalence decisions
Increasingly, FIA is focused on leadership in operational and technology issues. While regulatory change remains a top priority for our members, FIA is also committed to improving the efficiency of the systems and workflows that support global cleared derivatives markets.
During the pandemic-related disruptions in early 2020, FIA was extremely engaged with our members on these operations issues. The Global Trade Reconciliation Contact lists compiled by FIA became the go-to resource for market participants looking to reconcile trade backlogs during the height of market volume and volatility. We also launched a COVID-19 resource page and daily email distribution to help market participants monitor the latest developments and their impact on the global cleared derivatives industry. FIA is also committed to building on this work via a forum of more than 20 exchanges and CCPs that were originally convened as a consequence of COVID-19 disruptions and now is focused on improving operational processes going forward.
Additionally, FIA was a vocal opponent of trading restrictions that were proposed in 2020, including speaking out in opposition to short-selling bans and signing onto a joint effort from financial services trade associations to warn against market closures. We also fought to make sure employees in derivatives markets could effectively perform their important day-to-day jobs as "essential workers."
Beyond these comprehensive COVID-related efforts, FIA also continued to focus on long-term priorities including our "Tag 1031" effort to resolve brokerage rate issues and our 17th annual FIA Disaster Recovery Test that hosted more than 70 firms in a coordinated global industry effort to test business continuance, process recovery, connectivity and functionality.
Noteworthy FIA work:
- FIA a joins over two dozen trade groups in opposing NJ FTT proposal
- FIA urges market participants to prioritize data standardization
- CFTC withdraws Reg AT, advances supplemental electronic trading proposal
- FIA comments in support of the CFTC’s electronic trading proposal
- FIA opposes short selling bans
- FIA seeks clarity from the CFTC on permissible market practices for margining separate accounts
- FIA joins trade associations and businesses to urge Trump Administration and Federal officials to keep markets open
- FIA praises CFTC’s quick response amid global pandemic
- FIA publishes Market Surveillance Guidelines
- FIA respond to ESMA’s consultation on technical standards on reporting, data quality, data access and registration of trade repositories under EMIR REFIT
- FIA responds to ESMA’s consultation on obligations to report transactions and reference data under MiFIR
- FIA asks CFTC to allow FCMs to better use affiliate branches to avoid COVID-19 disruptions
In 2020, commodity market participants dealt with a host of issues prompted by pandemic-related disruptions, a global push towards sustainability, and lingering regulatory uncertainty. Through three dedicated committees in Asia, the US and Europe, FIA worked tirelessly for our diverse array of member firms on these commodity-related derivatives issues.
In the US, our commodities group focused its advocacy efforts on supporting the CFTC's position limits rulemaking that was proposed in May and ultimately finalized in October, closing the book on roughly a decade of regulatory uncertainty around this issue.
In Europe, FIA advocated on behalf of its commodity members with respect to European rules establishing position limits and in particular the ancillary activities exemption as part of our continued engagement with MiFID II rulemakings, which resulted in the MiFID quick fix being agreed by co-legislators in December. FIA continued to support members by keeping them informed and by weighing in on the implementation of new exchange rules, regulations and Brexit related issues with the transition period coming to an end on 31 December. In the UK, we successfully advocated for exemptions from insolvency law changes for commodities and other derivatives, with the result that such contracts can still be terminated upon insolvency of the counterparty. We also successfully advocated to remove a six-month time gap between the expiry of commodity dealer exemptions under European capital rules and the coming in force of new exemptions under the Investment Firm Regulation.
In Asia, traders were granted access to China's sixth international commodity futures contract as bonded copper futures on the Shanghai International Energy Exchange debuted on 19 November. As new rules in the region make it easier for international investors to trade in China’s markets, FIA's Singapore-based team continues to closely monitor how new products and regulations will reshape the global commodities landscape in 2021 and beyond.
Noteworthy FIA work:
- CFTC approves final rule on speculative position limits for commodity derivatives
- FIA files response with ESMA on the review of MiFID II position limits
- FIA publishes risk disclosure template for negative contract prices
- FIA commodities members support swaps data reporting changes
In September, FIA published a policy paper on climate-related risks for financial markets and the global economy. The paper, "How derivatives markets are helping the world fight climate change," focuses on how the industry is already addressing this issue, and highlights potential partnerships with the public sector to help build a more sustainable economy in the long term.
This was the first comprehensive document from FIA on the financial impacts of climate change and the related global economic transition, but it certainly was not the only way FIA has engaged with sustainability issues recently. FIA staff in London and Brussels are closely watching the sustainable finance agenda of the European Commission, and our representatives in Asia are monitoring efforts there including the Monetary Authority of Singapore's Sustainable Finance Initiative.
Looking forward to 2021, FIA President and CEO Walt Lukken was asked to join the Consultative Group of the Taskforce on Scaling Voluntary Carbon Markets, a group initiated by Institute of International Finance and Mark Carney, UN Special Envoy for Climate Action and former Governor of the Bank of England. The taskforce aims to develop a blueprint for how we improve the use and scale of voluntary carbon markets that will be critical to tackling climate change in the future.
- FIA policy paper: "How derivatives markets are helping the world fight climate change"
- FIA statement on CFTC MRAC subcommittee report on climate change
- FIA submits response to the European Commission consultation on a renewed sustainable finance strategy
- FIA discusses climate-related risk to FIA members, derivatives industry
- Joint trade association letter to ESMA on carbon benchmarks
In 2019, FIA announced a board-level Diversity Committee, an initiative addressing the importance of diversity and inclusion in our industry, chaired by FIA Board member Alicia Crighton of Goldman Sachs. In 2020, this Diversity Committee became an even more important part of our mission, as worldwide protests against racism and systemic inequality focused attention on these critical issues.
FIA’s diversity initiative recognizes that our industry clearly needs increased diversity and opportunity throughout its ranks. That is why we have hosted industry discussions on diversity and inclusion during 2020, including a joint webinar with the Federal Reserve Bank of Chicago and a dedicated panel at our virtual Expo conference that urged derivatives market participants to "double down" on diversity in the wake of the pandemic.
On our website, we also launched our Diverse Voices series in 2020 that gives members of our community a chance to share personal stories of challenges and successes in their own words. A dozen individuals have offered their experiences, and FIA hopes to continue amplifying the voices of others in 2021 and beyond to continue our focus on diversity and inclusion initiatives.
- Diversity & Inclusion initiative homepage
- FIA statement on racism and inequality
- Diverse Voices: Derivatives professionals share personal stories of challenges and success
FIA continued to maintain and enhance a number of documentation services in different regions. In Europe, we introduced supplemental netting opinions that cover the FIA Indirect Clearing Terms. In partnership with our members, we commissioned two new CRR Article 305(2)(c) ‘look-through’ legal opinions for Spain and Ireland. We also obtained brand new netting opinions for the UAE (federal law) and the Russian Federation, where we successfully sought approval from the Central Bank of Russia that made a positive netting opinion possible. Brexit reports for relevant legal opinions have been published. Finally, in Q4 2020, we embarked upon a project of updating the FIA Terms of Business 2018 to keep it up to date with recent regulatory change and reform.
In the US, FIA’s documentation library continued to build on its existing range of guidance documents, template agreements and disclosures. In partnership with the SIFMA Asset Management Group, FIA now offers sample provisions to assist FCMs to comply with CFTC relief for margining separate accounts with the same beneficial owner. FIA also published a new disclosure form to help FCMs warn customers on the risks of negative pricing.
More information on FIA Documentation Services can be found here.
FIA continued to successfully add to the FIA CCP Risk Review in 2020, an online tool summarizing rules and procedures of CCPs worldwide. There are now 123 CCP surveys available for purchase by member and non-members, and the CCP Risk Review has become the go-to tool for clearing members to stay current on rulebook changes.
Additionally, FIA continues to build our suite of online courses focused on market conduct and exchange rules. These courses serve the cleared derivatives community in building a shared understanding of how our markets work and the rules that protect them. FIA added three exchange-focused courses for Eurex, LME and SGX as well as completely re-platformed the offering to provide enhanced options for course deployment. FIA Training online courses are ideal for traders, senior managers, analysts and programmers as well as sales, client services, operations and other team members.
FIA knows that for many of our members, the most important service we provide is access to a deep network of key derivatives market participants and information on best practices and emerging industry trends. That sense of community became more important than ever in 2020, as the pandemic resulted in nearly everyone working from home more and travelling less.
FIA President and CEO Walt Lukken offered members an up-close-and-personal look into his laundry room workspace to show the importance of staying connected, no matter where our workstations may be. FIA also compiled personal profiles of key individuals across our industry and how they were coping with the challenges of working from home in our Persevering Under Pressure series. FIA also catalogued some of the generous charitable efforts from members including Citadel, Goldman Sachs, Cargill and Citi to name a few.
Through it all, FIA remained a central gathering point for the industry through virtual events to bring industry news to our members wherever they live and work. This included 30 different webinars, a virtual forum with US political analyst Charlie Cook, and four virtual conferences as FIA's IDX, L&C, Expo and Asia took place in digital formats this year to accommodate social distancing and public health concerns.
FIA advocates for the cleared derivatives industry as a whole, but our affiliate organizations continue to do important work in specific areas. These include:
FIA European Principal Traders Association (FIA EPTA) represents more than 25 principal trading firms in the region on key issues such as automated trading, technology concerns and market fragmentation.
The FIA Principal Traders Group (FIA PTG) is an association of firms that trade their own capital on exchanges worldwide.
In 2020, against the backdrop of the global pandemic and unprecedented volatility and volumes, FIA PTG continued to advocate on behalf of its members on a broad range of market structure issues across multiple asset classes including futures, equities, government securities, cleared swaps and corporate bonds. In addition to its market structure advocacy work, other topics addressed included the risks associated with electronic trading, the importance of timely trade reporting, the market impact of financial transaction taxes, the value of client participation in CCP default auctions, and opportunities for streamlining audit trail requirements. FIA PTG used comment letters, regulatory advisory committee participation, meetings with regulators and media as well as conference panel participation to promote its positions on these topics.
Detailed descriptions and links to FIA PTG’s work is contained in its mid-year and annual reports found here.
FIA Technology Services, Inc. (FIA Tech), a wholly-owned subsidiary of FIA, provides key services and processes to the industry including managing legal agreements, settling brokerage, meeting compliance requirements and automating reconciliation. In 2020, FIA Tech continued to offer solutions to the market, with a goal of creating operational efficiencies and assisting with the management of complex legal and compliance concerns. Following on the launch of Tag 1031 by CME in 2019 and Eurex in 2020, FIA Tech continues to work with other exchanges across the globe on implementation thereof.
Futures Industry Association Japan (FIA Japan) has around 60 members across the region's derivatives industry, and focuses on both financial and commodity markets.
The Institute for Financial Markets (IFM), founded in 1989, is a nonprofit educational foundation that aims to increase public awareness and understanding of the importance of financial and derivatives markets. The Institute engages clients in activities such as workshops, conferences, course dissemination, course development and research.
FIA is the leading global trade organization for the futures, options and centrally cleared derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C. Our membership includes clearing firms, exchanges, clearinghouses, trading firms and commodities specialists from about 50 countries as well as technology vendors, law firms and other professional service providers.