Competing with conviction, respecting the contest

Opening remarks of FIA President and CEO Walt Lukken at the International Futures Industry Conference

11 March 2024

Welcome everyone to FIA’s annual International Derivatives Conference or what we affectionately call Boca. This is the 49th Boca Conference, which means next year we will be celebrating our golden anniversary of this amazing event.

Boca is the start of our industry’s calendar. It’s a time that our markets take stock as a global community.

We gather here in the south Florida sunshine with our colleagues, clients, and competitors to hear the latest trends and measure ourselves against the best and the brightest.

And we have a little fun as well.

Boca causes us to reflect as leaders and ask probing questions of ourselves.

  • Do I have an advantage over my competition?
  • What innovation can give me an edge?
  • What trends are people talking about and why?
  • Are there strategic partnerships worth pursuing?  

This annual gathering causes us to strive to do better. To try harder. Think more creatively. And innovate as an industry.

Boca helps us to raise our game.

Now I have a confession to make. When I took over the FIA twelve years ago, I really only had one non-negotiable assignment when being handed the keys: Don’t screw up Boca!

I often ask myself: what makes Boca special?

Is it the C-suite attendees? The exchange leaders panel? The sunny weather? The Palm Court bar?

There seems to be several ingredients in this special cocktail that contribute to the magic.

But I’ve concluded that there is one key thread over time that fuels Boca’s success and it has been a constant and relentless heartbeat since Boca’s beginnings.

And that’s competition.

Competition is what drives this industry and this event. Think about it.

There are legendary stories of Bocas past recounting major deal announcements, early morning merger counteroffers, and even more recently, a late-night “debate” at the Palm Court bar among famous and infamous characters from our industry.  

At the core of these stories are colorful characters with a singular desire to compete and win. It’s just part of our DNA. I see this at all levels of the industry from CEOs to startups.

But what I also love about this industry is this competition comes with a healthy respect for those on the other side of the battlefield. We compete with all our conviction, but we respect the contest.

I liken it to elite professional athletes that have made it to the top of their game. They compete like hell on the pitch, ice rink or basketball court but afterwards, they are trading jerseys or shaking hands in a sign of mutual respect.

Our industry appreciates the courage it takes to compete. In his Man in the Arena speech, US President Teddy Roosevelt aptly described the character of the risktaker. Roosevelt, who prided himself on being a cowboy and rough rider, despised those who stood on the sidelines to criticize without ever entering the battlefield.

Rather, he saved his admiration for those who dared to take risks and compete, even if they came up short. These are the builders, creators, and achievers of our society.

Roosevelt could have been describing the founders of our industry or our current exchange leaders or even our startup companies.

Our industry respects those true competitors who enter the arena for a worthy cause, whether they succeed or fail.

That’s why I love the resilient people of this industry. They enter the arena without hesitating.

Now, there are many reasons to be optimistic about our business. Last year the listed derivatives markets traded over 130 billion contracts globally—the first time crossing the 100 billion contract mark. That is a 64 percent increase over last year and the sixth consecutive record year of global volume.

We are also seeing innovative new products like micro contracts and zero-day options helping to drive this growth. This new growth comes with a resurgence of traditional asset classes like rates and energy as well as developing regions like India, Brazil, and Dubai. Our story is one of diversified growth.

Another exciting opportunity is the US Treasury Market, which is valued at $27 trillion today and is expected to grow to $45 trillion in just ten years.

If you close your eyes and I told you that a Washington regulatory agency was mandating a trillion-dollar market to clear, you might think it was 2009, not 2024.

In a Déjà vu moment, SEC Chair Gary Gensler is repeating his OTC playbook from Dodd-Frank but this time his target is the US treasury market.   

But Walt, that’s cash treasuries, not futures or swaps. Why should we care?

Because this mandate will force treasuries and repos into a client clearing model similar to the futures markets. And guess what? We know a little something about how that model works and operates.

And by the way, DTCC estimates that the treasury and repo mandate could bring as much as $1.6 trillion dollars into clearing daily. Yes, 1.6 trillion daily!

And once the cash treasury market begins to clear, related products like cleared treasury futures and interest rate swaps can be portfolio-margined or cross-margined together. This will release significant amounts of trapped liquidity and regulatory capital back into the marketplace and economy.

Now that’s exciting and that’s why we should care.

Now, with all this potential growth, we must ask ourselves: Are we ready?

Is there capacity in our markets to take on these new opportunities? Is our infrastructure sound? 

Are we prepared for the products and markets of the future?

If we are being honest, the answer is unclear. Sure, our ecosystem works well today but are we prepared for the promise of growth ahead? Have we future-proofed as an industry?

Just as our DNA causes us to boldly enter the arena, we equally stand ready to roll up our sleeves as a community to solve problems together. The people of our industry are always eager to take off their competitive hats for a common cause.

We have seen this time and time again over the years. And this year is no exception.

In fact, the past year we have witnessed members of our industry stepping up to help modernize our infrastructure, defend the principles of open markets, or fight against wrong-headed policies.

I am proud to be associated with such people.

To recognize those individuals in our membership that have demonstrated such exceptional leadership, FIA created its President’s Award that highlights their efforts for the greater good of the markets.

This year’s recipients include:

  • Natalia Da Gama of Santander CIB for her outstanding work on EU clearing
  • Helen Gordon of JP Morgan for her advocacy on Basel capital reforms
  • Martin Kalnins of Nasdaq for his solutions-driven efforts on European reporting
  • Julian O’Leary of GH Financial for his consensus-building work around cyber resilience
  • Lou Rosato of BlackRock for his vocal leadership in support of standards and DMIST

I invite those recipients in attendance to stand. Please join me in congratulating these individuals who have worked so hard to improve our markets.

Today, more than ever, we need individuals like these to help us lay the foundations for the growth and change to come. 

The good news is that we have already begun this journey to build a better ecosystem. Every gardener knows that the key to a successful garden is cultivating the right balance of conditions for plants to grow.

Our industry is no different. There are some fundamental conditions that have allowed our markets to flourish over time. It doesn't just happen by chance.

Healthy markets need the rule of law to make them predictable and orderly. You also need smart regulations that are fit for purpose to stop bad actors and encourage competition.

You need strong risk management and adequate capital to protect the markets from contagion. You need market infrastructure that is safe, accessible, and resilient for the inevitable volatility ahead.

Like a gardener, FIA works with its members to get the right balance of these conditions. We nurture an ecosystem that allows our markets to innovate and thrive.

And if we get these conditions right, we will be better prepared for the inevitable change ahead.

To this end, FIA is doubling down on our commitment to DMIST, the industry’s standards body for the futures and options markets. Last year, DMIST adopted its first standard for the timing of allocations and give-ups.

This year, DMIST is adding more members, more resources and developing a long-term roadmap that provides a plan for simplifying our workflows. This forum aims to make the operations of our marketplace more resilient, more efficient, and more competitive.

FIA is also working hard to ensure that the incentives to hedge in our markets are properly aligned, especially when it comes to bank capital. US bank regulators have proposed new capital reforms that would increase the amount of capital for cleared derivatives by 80 percent.

This is the main reason that these capital proposals were listed as the top concern of our industry by the recent FIA-Coalition Greenwich survey.

These capital proposals, which fail to properly recognize the risk-reducing nature of clearing, could lead to fewer end users in our markets, less capacity in the system, and more concentration among clearing firms.

Our industry stands united in our opposition, and FIA will continue to advocate for a more risk-based approach to capital that recognizes the important public benefit of clearing.

Another area of great promise for modernizing our infrastructure is tokenization. For years, our markets have been talking about blockchain but without a sense of its practical application.

Today, that vision is becoming clearer. Our industry is beginning to explore ways to use tokenized collateral as a faster and safer way of moving margin and settling trades.

In our markets, time is risk. The longer a trade goes unsettled, the more likely a default can disrupt our markets. If we can quicken the movement of collateral, settlement risk is reduced significantly.

The tokenization of collateral could have immediate benefits for our markets such as allowing settlement on public holidays when banks or markets are closed.

Looking into the future, tokenization would also enable around-the-clock settlement as our markets move to 24/7 operations.

These are early days of these discussions, but the promise is exciting and worth our cultivation in the coming months.  I challenge our industry to advance this work in the coming year.

As we raise the starting gun of Boca, we are reminded of the great promise of our industry’s future and the importance of modernizing our infrastructure to support it.  

And if we get it right, we will create an environment that allows a new generation of risktakers to enter the arena without hesitation to compete, innovate and create.

If we succeed, we are building the foundations for the next fifty Bocas.

In kicking off the program, I want to humbly thank all of you for allowing FIA to represent this industry. We are truly grateful to be stewards of this amazing community.

I also want to express my appreciation to our incredible sponsors and exhibitors for all they do to make Boca a reality. You allow the magic to occur, and we appreciate it. Please join me in a round of applause for these outstanding companies.

I also want to thank the many participants in our program,

  • CFTC Chair Russ Behnam,
  • Citadel founder and CEO Ken Griffin,
  • The ever-popular exchange leaders,
  • American Petroleum Institute CEO Mike Summers at tomorrow’s ICE Energy Breakfast,
  • Bestselling author and energy historian Daniel Yergin at the DTCC lunch.

This year’s program is one of our best.

I also hope you take a moment to give back to those in need and donate to our industry charity—Futures for Kids.

You can play in our Charity Golf Event, buy a raffle ticket, or donate to the Rama Kilt Challenge. All these efforts raise funds for charities helping disadvantaged youth.   

Lastly, I want to highlight the Futures Industry Hall of Fame ceremony that takes place tomorrow afternoon here in the Grand Ballroom. Come celebrate the many achievements of these 12 individuals from our industry as we raise a glass on their behalf.

Thank you all, again, for being here, at this arena we call Boca, and with that, let the games begin!

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