Crypto derivatives - 'Same activity, same risk, same regulation'

Opening remarks of Walt Lukken, President and CEO of FIA, at the FIA Boca conference

15 March 2022

Opening remarks of Walt Lukken, President and CEO of FIA, at the International Futures Industry Conference in Boca Raton, Fla. As prepared for delivery.


Welcome back to Boca. It is fantastic to be with you. Or to quote Sir Paul McCartney: Get back to where you once belonged. I can’t believe we are here!

It’s so great to see all of you after three years away. As you probably noticed, we’ve had some significant changes here at The Boca Raton resort. But one thing that hasn’t changed is the positive energy that has been the signature of Boca for the last 46 years.

We gather at a time of great global unrest. Russia’s invasion of Ukraine has shocked the free world and sent markets into turmoil. We must stand firm in our support of freedom and democracy everywhere. And our prayers are with the Ukrainian people.

Since last I took this stage three years ago, so much in our society has changed. From the way we work to the way we communicate to the way we dress and socialize. But there’s one constant that holds over time.  And I vow to never take it for granted—that’s the importance of being together with people.

Being together builds community and trust. It encourages tolerance and empathy. And it brings joy and laughter, which we desperately need right now. I am so glad we can experience these things together again at Boca.

Now I promise, I won’t get sentimental, even though this March marks my 10-year anniversary at FIA.  Even more impressive, I want to recognize FIA staff member Toby Taylor who just celebrated 35 years with FIA. Toby, please stand.

And I won’t bore you with another speech about “lessons learned” from the pandemic. You’ve heard that many times, but here’s the summary: The cleared derivatives markets are resilient, we are working on ways to improve that resilience, and our future is very bright.

Let’s focus on that last part. Because Boca has always been about new opportunities, new partnerships, and new innovations.

Let’s touch briefly on a few of these areas:

  • First, our markets are riding multi-year growth trends. In 2021, we saw the fourth consecutive record for futures and options volume. And in 2022, we're tracking another record year.
  • The rise of retail also continues. Volumes on US equity options hit 9.4 billion contracts in 2021, up nearly 40% over the previous year.
  • There’s also the opening of China’s financial markets. FIA continues to work with Chinese regulators to provide greater access to the second largest economy in the world.
  • Finally, there’s our industry’s initiative to develop clearing standards to ensure these higher volumes are processed and cleared safely and efficiently. Last year, FIA released a blueprint for modernizing the trading and clearing lifecycle. And this week we have announced further steps to advance this important initiative.

All these opportunities and trends will be discussed throughout this week as we explore ways to grow our industry in the coming years.

But as Boca kicks off, I want to draw your attention to one important topic. And that’s digital assets.

Derivatives industry cannot ignore digital assets

The global derivatives industry cannot ignore digital assets. Cryptocurrencies are not a fad – and neither are related crypto derivatives products.

  • A recent report showed volume in global crypto derivatives hit $3 trillion dollars in January and accounted for more than 60% of all trading in digital assets.
  • Furthermore, several major crypto exchanges have purchased regulated futures exchanges, identifying our markets and its regulatory framework as strategically important.
  • And capital keeps pouring into the crypto space. In the last quarter of 2021 alone, venture capital firms have invested $10 billion dollars into crypto and blockchain startups.

Everyone seems to have an opinion, including FIA members, on how these markets should be developed and regulated.

Last week, the Biden Administration released an executive order asking for a wholesale governmental review of digital assets. This ambitious directive will tackle topics like customer protection, systemic risk, national security, and economic competitiveness.

Specific to our world, last week the CFTC put out a request for information around an innovative clearing proposal of one crypto exchange. FIA welcomes this innovation, and looks forward to a lively debate around this request. 

Whether you're a convert or a skeptic, these developments require us to pay attention to this growing asset class -- or ignore it at our own peril. 

Core principles for a healthy and safe market

I, for one, am watching the development of these markets with anticipation. Why? It has awoken our industry’s animal spirits that John Maynard Keynes famously wrote would spur competition and innovation.

In Latin, Spiritus Animalis literally translates to “the breath that awakens the human mind.” The innovation and competition brought by the crypto world is healthy for our markets. And it will lead to improvements for everyone, whether you believe in this product or not.

It’s appropriate that these new developments are happening in Boca. Boca has always been a place where big news is made and big deals get done. There is a similar anticipation in the air.  

As a former regulator, I try to look at products without projecting moral judgment on whether they are good or bad for society. Instead, I believe in the wisdom of crowds and allow markets to make such determinations. 

But as stewards of markets, we should all focus on the core principles of what makes a healthy and safe marketplace. There is broad agreement on this front.

  • Markets should safeguard all market users with protections against fraud, abuse, and manipulation.
  • Markets should maintain their integrity so that price discovery and hedging can function to help drive commerce and allocate capital.
  • And importantly -- Markets should be fair. All participants should be treated the same for the activities they perform, the risks they generate or the products they trade

That’s why crypto firms are attracted to our markets. Because they understand the importance of these core values, and they want to build their businesses in the right way.

I’m reminded of other innovative asset classes that benefited by coming onto regulated markets. Before 1974, US exchanges only listed agricultural products. That was before the innovative minds of Leo Melamed and Richard Sandor launched the first financial products on regulated exchanges. Today, a vast majority of our markets are made up of these financial products.

In 2008, most over-the-counter derivatives were transacted off regulated exchanges and without the benefits of central clearing. This lack of regulation led to asset bubbles and bad behavior, significantly contributing to the Financial Crisis of 2008.

As chairman of the CFTC at the time, I was an early advocate for clearing OTC derivatives. I wrote in a Wall Street Journal op-ed how clearing would keep these markets resilient and allow these products to thrive.

Fast forward to today, the OTC markets remain a vibrant part of our risk management ecosystem. And a vast majority of OTC derivatives are now cleared on regulated clearinghouses.

Did regulation cause these products to wither? Quite the opposite. Smart regulation brings clarity and fairness to markets.

Smart regulation allows products to prosper or fail on their merits. We have a resilient and thriving industry because of well-crafted regulation. This makes room for innovation and growth but still protects customers and markets. Innovation and safety are not mutually exclusive goals.

Same activity, same risk, same regulation

In fact, the US Congress asked the CFTC to balance these interests in setting out its mission.

Beyond its mandate to protect against manipulation, fraud and market abuse, the statute reads that the purpose of the CFTC is to “…promote responsible innovation and fair competition…” The key words here are responsible and fair.

Promoting innovation and competition is not unbridled; they must be done fairly and responsibly. 

Some in our industry have expressed fear and concern around crypto markets. That’s in part because crypto markets are often described as Defi or Disintermediated, which are foreign concepts to our traditional market structure.

FIA understands these concerns. And they need to be addressed through the lens of risk management and customer protection.

Clearing firms aren’t just an inconvenient middle tier. They perform important functions. They safeguard customer funds, prevent money laundering and mutualize systemic risk.

In some ways, clearing firms are the original DeFi as they diversify risk among many highly capitalized institutions. If some are changing this mutualized model to a more centralized one, we need to think hard about how these important protections will continue to be addressed.

We should learn more about these models and analyze them through the lens of responsible innovation and fair competition.

What is fair? I go back to one of my first principles of healthy markets. Markets are fair when all participants are treated the same for the activities they perform, the risks they generate or the products they trade.

If an activity is generating risk, then it should be regulated and capitalized the same, no matter what you label the model. 

Same activity, same risk, same regulation…it’s that simple.

The good news is that, here in the US, the CFTC has a principles-based regulatory structure. It has flexible tools that can help us to get beyond labels and focus on the underlying risk and activity. Other global regulators have also picked up on this concept of “same activity, same regulation.”

I am hopeful that this simple directive can guide us, and ensure that these new models have a transparent process for discussing these important issues.

FIA welcomes forums like this week that will help us to better understand these innovative models.

We must recognize that innovation is key to our industry’s growth and survival. It's in our industry’s DNA, and it's in everyone’s interest to make sure innovation happens responsibly and fairly. 


Thank you

So as I wrap up, there is one last thing I’d like to say – and that’s “thank you.”

Thank you for being FIA members and making the decision to be a part of this community. We are also grateful for everyone who made the decision to come to Boca during these difficult times.

As is tradition, I would like to recognize any audience member who has been to Boca at least twenty times. Please stand and be recognized.

I also want to thank this year’s FIA Hall of Fame class for their significant contributions to the derivatives industry. I invite you all to join me tomorrow in this room at 5:15 pm to honor these special individuals.

And I want to give special thanks to our sponsors and exhibitors. I’m thrilled to report a record number of sponsors for this year’s Boca – from our traditional partners to many first-timers.

Boca is a world-class conference because of you. Let’s give them a round of applause.

This week, we have incredible panels and keynotes, including CFTC Chairman Russ Behnam, former Bank of England head Mark Carney and many others.

To top off these discussions, we have some incredible receptions and Late-Night events that you should not miss. Just remember: pace yourself, stay hydrated and be responsible.

With that, it’s great to be back. And it’s going to be a fantastic three days. Thanks for being here. And remember, Get Back Boca!

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