2021 marked the year that our industry began to look past the disruptions of the pandemic and envision the exciting future that lies ahead for global listed and cleared derivatives markets. While FIA continued to wrestle with the ongoing challenges facing our industry, we also spent much of last year working with our members on what the future holds in a post-COVID world. Indeed, the path ahead looks bright!
Taking lessons learned during the pandemic, FIA embarked on a comprehensive strategic initiative to improve and modernize the settlement workflow for exchange traded derivatives. This included a comprehensive “Blueprint for Change” that will guide industry-wide efforts going forward. Efficient and standardized procedures around settlement and clearing will benefit market participants across every part of the trading lifecycle, and in 2021 we took the first steps in what is sure to be a long journey towards this important goal.
FIA also laid out its vision for safe and efficient cross-border regulation, setting out key principles in our ongoing dialogue with regulators about the nature of globally connected derivatives markets. FIA’s principles lay out that cross-border regulation must be pragmatic and globally coordinated, providing safeguards without hindering competition and innovation.
These market access discussions varied broadly by jurisdiction. In China, we advocated for foundational cross-border concepts in that nation’s first-ever futures and derivatives law. In the EU and UK, we highlighted the market impacts of improper cross border policies in a post-Brexit world. In the US, FIA highlighted our global priorities to the incoming Biden Administration as the regulatory agencies transitioned to new leadership. All of these discussions shared a common theme -- the importance of keeping markets connected and open.
We also returned to hosting in-person events in London and Chicago for the first time in two years. FIA was one of the first associations to cancel a major event due to Covid and one of the first to bring them back safely. With improving public health conditions at that time, we felt it was imperative to gather our community of clearing firm executives, regulators, exchange leaders, market makers, buyside, technology vendors and other important stakeholders to exchange ideas and forge new business relationships in a safe environment. We are happy to report that both events exceeded our expectations in bringing the industry back together again.
In addition to these major initiatives, FIA staff in Brussels, Chicago, London, Singapore and Washington, D.C. continued to do the core work of responding to consultations and shaping policies that impact derivatives markets worldwide. FIA's staff work tirelessly for the association's members and their priorities, and our body of work over the years has shaped this industry for the better.
It was a busy year! But much like our member firms, FIA's staff was energized by the new opportunities, and our hope is that this year will be even better than the last. Here are some work areas and specific actions that reflect the value FIA provided to our members in 2021.
FIA Year in Review
FIA strongly believes national approaches that do not defer to home country regulation create overlapping or inconsistent regulation on cross-border activity that ultimately leads to less efficient markets and higher costs for end-users.
FIA released a policy paper in September clearly outlining seven key principles for cross-border regulation to help reduce friction and fragmentation. Many of these principles have been applied to futures trading and clearing for generations to build safe and efficient markets that connect buyers to sellers at a global level.
One specific area where FIA has brought these principles to bear is in relation to the ongoing debate in the EU and UK about the location of euro denominated clearing due to the expiry of time limited equivalence for UK CCPs at the end of June 2022. FIA's staff worked diligently with regulatory authorities in the EU and UK to help shape derivatives market policy, and to help European policymakers understand the importance of extending temporary market access for UK clearinghouses.
Another major cross-border work area in 2021 was FIA's input into the draft of China's historic Futures and Derivatives Law, helping China's policymakers understand member concerns on issues including legal certainty and regulatory cooperation.
Notable FIA work
Ten global clearing firms make strategic investment in FIA Tech
In June, FIA announced an investment of $44 million by 10 leading clearing firms to fund the strategic growth of FIA Tech. The capital raise will advance FIA Tech's efforts to bring innovative solutions to the derivatives industry.
FIA Tech is a global provider of technology solutions vital to the futures, options and centrally cleared derivatives markets. It currently provides services that aid the industry in managing legal agreements, settling brokerage, managing risk, meeting compliance requirements, and automating reconciliations.
FIA retained an ownership stake in FIA Tech and continues to serve on its board, but FIA Tech is no longer a wholly owned subsidiary of FIA.
The newly capitalized FIA Tech will be investing to further the development of existing products that have successfully served the industry and launch innovative new solutions to improve market infrastructure across the listed and cleared derivatives industry. Under its new structure, FIA Tech will continue to work in partnership with the broader industry, including exchanges, clearinghouses, clearing firms and other intermediaries, independent software vendors, buyside firms and end users to bring efficiency to the exchange traded and cleared derivatives industry.
With each passing year, global cleared derivatives markets get more complex - meaning operations, execution and technology-related issues are becoming even more important to FIA member firms.
In 2021, FIA's Board of Directors helped create more structure around our operations-related work by supporting a multi-year effort to bring industry stakeholders together to help find ways of modernizing standards and processes in the global listed derivatives markets. FIA's Taskforce on Open Industry Standards consists of stakeholders working in partnership to explore best practices, industry-wide standards and operational processes to make global listed derivatives markets more efficient, resilient and competitive for all market participants.
FIA also released a report calling on participants in the futures and options industry to work together on a major initiative to improve the efficiency of the trading and clearing process for exchange-traded derivatives. The report, "Modernizing the Listed Derivatives Workflow: A Blueprint for Change", addresses the challenge of achieving industry-wide improvements.
In addition to this comprehensive long-term effort, FIA continued its focus on operations and technology issues through standing operations committees, events like the annual Disaster Recovery Exercise and a continued focus on electronic trading issues, and forums like an FIA-sponsored roundtable in October between market participants and the China Financial Futures Exchange.
Notable FIA work
FIA's support for open, transparent and competitive derivatives markets means that we work on a wide array of consultations and regulatory initiatives across the trading and clearing lifecycle. In 2021, FIA's legal and policy work spanned the entire globe and touched on numerous topics, including:
Law & Compliance implementation work in 2021
• Monitoring firms’ remote work policies and working with the CFTC and NFA to extend and re-calibrate regulatory relief for continued, and, in some cases, permanent, work from home arrangements
Clearing: 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 2021. These included comments on the implementation of the EU's CSDR Settlement Discipline regime and ESMA consultations on CCP recovery and resolution, among others.
Trading: FIA strongly supports open access, transparency, and data-driven policy making to support the trading firms that provide liquidity to global cleared derivatives markets. In 2021, we continued to build on this mission through work including responding to ESMA consultations on EMIR trade reporting rules and algorithmic trading under MiFID II/MiFIR.
Capital and margin: Capital and margin requirements have significant impacts on the ability of banks to provide clearing services for their customers, and FIA works tirelessly to help regulators understand the risk-reducing effects of clearing and the need for a diverse community of clearing firms. In 2021, FIA submitted a response to the UK Prudential Regulation Authority consultation on the implementation of Basel standards and an important presentation on CCP margin procyclicality before European regulators, revisiting recommendations from our white paper published at the end of 2020. In Asia, FIA organised a meeting in November between member firms and the Australian Securities and Investments Commission and the Reserve Bank of Australia to discuss various topics including margin, fee structures and market resiliency.
Notable FIA work
On behalf of our members, FIA works closely with policymakers and regulators on both long-term regulatory implementation and day-to-day issues in metals, energy and agricultural markets. These include topics such as position limits, position reporting, and regulatory exemptions.
Our work in 2021 again reflected these important work areas, including contributing comments to HM Treasury's Wholesale Markets Review in support of resilient and robust commodity markets. In the US, FIA once again proved itself a trusted partner with the public sector through a presentation on global agricultural futures trading delivered to the Agricultural Advisory Committee of the US Commodity Futures Trading Commission.
We also continued our outreach and education through webinars, including an FIA Operations Americas Division presentation on physical deliveries processing and settlements and a webinar dedicated to Asia-Pacific commodity market trends.
Notable FIA work
As climate change is increasingly on the agenda for global financial regulators, FIA has ramped up its efforts to advocate on behalf of our members to support market-driven solutions and public-private partnerships to help reduce friction during the transition to a more sustainable global economy.
Join FIA's regional climate working groups
FIA's regional climate working groups accelerated their work both through formal regulatory consultations as well as networking with key policymakers in various jurisdictions. Contact FIA Director of Government Relations Kyle Glenn to participate in our US climate working group or contact FIA Senior Director of Regulation John Graham to participate in our UK/EU working group.
Building on its 2020 policy paper, "How derivatives markets are helping the world fight climate change," FIA published a Sustainable Finance Report to highlight industry-led innovation and case studies that show how cleared derivatives markets are helping end-users manage risks and assisting in price discovery of key commodities -- with carbon chief among them.
FIA also continued its work as part of the Taskforce on Scaling Voluntary Carbon Markets, a private sector-led initiative working to scale an effective, efficient and functioning voluntary carbon market. In 2021, this included key recommendations on governance body proposals and legal principles related to these markets.
Notable FIA work
As the investment community and regulators around the world have continued their focus on digital assets and related futures products, FIA substantially increased its focus on the area in 2021.
FIA's advocacy work also has increasingly focused on the issue, including an important joint-trade response in September to a Basel consultation on cryptoassets. FIA urged regulators to consider the prudential treatment of digital assets that is not excessively punitive and would not inhibit banks from meaningful involvement with cryptoassets, is technologically neutral, and is commensurate with the risks associated with the assets . In particular, FIA called on regulators to not penalize banks that serve as an intermediary role on behalf of clients, providing access to central clearing and transparent, regulated markets, often for risk mitigation and hedging purposes.
Notable FIA work
In 2019, FIA announced its board-level Diversity Committee. And in 2020, this Committee became an even more important part of our mission amid worldwide protests against racism and systemic inequality. Over the last year, FIA has continued its commitment to this important issue and ensured it has remained a top priority for the organization and our members.
In 2021, FIA joined forces with The Greenwood Project, a non-profit organization that is focused on introducing Black and Latinx students to careers within the financial industry via academic instruction, mentorships and paid summer internships in financial firms. In addition to directly sponsoring an intern, FIA has encouraged other firms in the industry to host Greenwood Project scholars.
FIA also has continued to highlight diversity issues in webinars, in-person conference programming and through our communications channels including MarketVoice articles and FIA Speaks podcast interviews.
Notable FIA work
FIA offers a way for our member firms to connect and collaborate with other key derivatives market participants, and to learn about the latest best practices and emerging industry trends.
We continued to offer a wide array of communications channels to connect in 2021 amid the lingering impacts of the global coronavirus pandemic, including our FIA Speaks podcast and MarketVoice digital magazine. FIA featured key staff from member firms in more than 30 webinars in 2021 on topics ranging from key legal developments to European legislative trends to cross-border trading challenges in Asia to analysis of futures and options volume trends.
As part of Expo, FIA also held its seventh-annual Innovators Pavilion as a way to highlight and support the next generation of innovative firms in our industry. Eight fintech startups gave presentations on their innovations over the course of the two-day show, giving Expo attendees an opportunity to engage with these entrepreneurs and explore new technology applications in crypto trading, commodity hedging, sports betting, market data and contract negotiation.
FIA has worked for decades to promote advances in the trading and clearing of derivatives, and the 2021 Innovators Pavilion built on FIA's commitment to accelerate the adoption of fintech solutions in these markets.
In support of its mission to promote better understanding of and greater transparency into the global derivatives markets, FIA publishes several types of statistics for our members. These include levels of trading activity on exchanges and swap execution facilities as well as the amount of customer funds held by clearing firms in the US and the default resources held by derivatives clearinghouses worldwide.
FIA also offers a range of guidance documents, template agreements and disclosures. In 2021, in partnership with the SIFMA Asset Management Group, FIA updated its provisions to assist FCMs to comply with CFTC relief for margining separate accounts with the same beneficial owner. We also issued revised versions of the International Uniform EFRP and Block Transactions Agreement.
In November, FIA released an updated version of the FIA Terms of Business 2018 (Version 2.0). Maintained in partnership with the law firm Clifford Chance, the Terms of Business suite is a comprehensive, state-of-the-art set of industry standard contractual terms for derivatives execution (ETD only) and clearing (ETD and OTC). FIA also updated the User Guide for the FIA Terms of Business, and released new Indirect Clearing Terms.
Enhancements were also made over the last year to FIA Training, our series of online courses focused on market conduct and exchange rules. In 2021, FIA released a new training course dedicated to spoofing regulations.
We also continued to offer the FIA CCP Risk Review, an online tool summarizing rules and procedures of CCPs worldwide. CCP surveys are 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.
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. Detailed descriptions and links to FIA PTG's work is contained in its mid-year and annual reports found here.
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.
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