Down-payments to modernizing our industry

FIA President and CEO Walt Lukken's opening remarks at FIA Asia 2023

29 November 2023

Opening remarks of Walt Lukken, FIA's President and CEO, at the FIA Asia Derivatives Conference in Singapore on 29 November 2023.

Welcome back to the St. Regis for our 18th annual FIA Asia Derivatives Conference. It is wonderful to be here in Singapore as our industry caps off another successful year.

This is my 13th FIA Asia conference, which includes my attending the first FIA Asia Conference in 2005 in Beijing as a CFTC Commissioner.

It has been wonderful to see the development of the Asian derivatives markets during that time.

Our industry should be very optimistic about its future. 2023 is on pace for a 5th record year in global derivatives exchange volumes. Renewed volatility in energy and interest rates have more participants hedging in our markets than ever.

And here in Asia, we have witnessed a continued surge in volumes that may recalibrate how the global industry approaches the Asia markets.

Let’s look at China. With the new Futures and Derivatives Law in place, exchange-traded derivatives markets are positioned for even greater growth. Already today, Chinese exchanges list 16 of the top 20 commodity futures contracts by volume in the world. With the growing importance of commodities, China will remain a dominant force in our markets for years to come.  

India is also experiencing exponential growth in the trading of options, mainly among retail participants in the equities sector. India’s ETD volumes have grown more than 10-fold since 2017 to roughly 60 billion contracts traded in 2023. This is a remarkable feat for both its scale and consistency.

India has become a major marketplace that is an increasingly important part of the global derivatives community. It has the potential to stand shoulder to shoulder with China and even mature markets like the US and Europe.

Developments in Singapore, Australia, Japan, Korea and Hong Kong are also impressive, making the next two days of programming full of optimism and energized discussions.

This year’s Great Debate will tackle artificial intelligence—a topic of great interest for our markets and an indicator of where our industry is heading in the months and years ahead.

This micro-topic represents a more macro shift toward investment in our infrastructure. And there are many more examples where our industry is modernizing with new technologies. This feels like a moment in time where innovative ideas about our market structure will dominate our attention for years to come.

If we want to build a better future for our markets, we must plan and invest accordingly to ensure they are accessible, safe, and resilient for all participants.

Our industry must continue to modernize the way we work to ensure we enjoy vigorous competition and continued growth.

This is a mission that FIA feels strongly about. And a mission that we hope you will join us in supporting in the months and years ahead.

This year, there were several tangible down-payments in modernizing our industry that are worth highlighting.

For example, FIA has been working to modernize the foundations of our markets with the formation of a standards body called the Derivatives Markets Institute for Standards, or DMIST for short.

We formed DMIST last year to raise the operational standards of our markets and improve their resilience.

In March 2020, when the pandemic shut down our global economy, our industry experienced significant backlogs in the give-up and allocation of trades. This caused a temporary misallocation of risk in the system and involved significant manual resources to resolve.

I liken it to lost luggage in the airline industry. Most of the time, your luggage is waiting for you when you get off the plane and everyone is happy.  

But when your luggage is delivered to the wrong city, passengers get infuriated and getting it back becomes exponentially more difficult. And if thousands of passengers lose their luggage at the same time, the logistics of fixing the problem become mindboggling.

Same with our industry. That’s why I’m pleased that our markets have rolled up their sleeves to tackle the issue head-on and develop standards around the trade-flow of clearing that can help avoid these delays.  

In June, DMIST published its first standard on the timeliness of give-up trades and allocations, requiring each step in the process to be complete within a 30-minute time window. 

We are now developing metrics to measure our adherence to this standard as well as new standards like average pricing that will make the trade flow more efficient.

This standard marks an important milestone in our work to improve operational efficiency.  It also is an important indicator of the power of working together as an industry. Stay tuned for more progress!

We are also looking at modernizing our approach to risk management. There has been increased focus among regulators on how derivatives markets manage risk during times of recent volatility.

Rather than sit back, this industry recognized the need to lean forward on this topic. So, in October, FIA published a report that lays out best practices around volatility controls for exchanges.

The report also recognizes the importance of allowing exchanges flexibility in the adoption and administration of these tools.

This was the result of collaborative work from a broad array of FIA members, from customers to the brokers to the exchanges themselves, and we thank everyone for their contributions.

FIA has also been tackling cybersecurity risk in our markets to ensure we are prepared when such attacks occur. And believe me, they will occur as we witnessed two weeks ago.

The cyber disruption at ION earlier this year, along with the more recent news about ICBC, have been wakeup calls. But once again, it showed how our industry can come together when it matters. 

An FIA taskforce recently published several recommendations on strengthening our resilience after a cyber-attack. These include forming a standing Industry Resilience Committee, improving information sharing, and affirming best practices for recovery and reconnection.

The report also recommends integrating our industry better into existing cyber exercises, with a specific focus on exchange traded derivatives.

Case in point, two weeks ago FIA was invited to participate in the annual public-private Quantum Dawn cybersecurity exercise that simulates a cyber-attack within the global financial services community.

This topic illustrates how our industry learns from our experiences and builds a better future, from the ground up.

All of these collaborative efforts—from standard setting to risk controls to cyber resilience—are an investment in the foundation of our markets. And they ensure our markets are sturdy enough to take on the growth and innovation ahead.

As you can see, it has been a busy year! But FIA, like most of you, has been energized by this work.

What an exciting time to be in this industry! I’m thankful for the support and work of this community in making our industry better.

So, thank you … thank you for being members of FIA, and allowing us to earn your trust.

As always, thanks to our amazing sponsors and exhibitors for their support of this conference. Please give them a round of applause.

I am grateful to be a part of this community that eagerly takes on difficult challenges and works together to build a better tomorrow.

Speaking of building a better tomorrow, I also want to use this opportunity to give a big shoutout to Rama Pillai from SGX, who is taking on the IDX Kilt Challenge this year in London. Every year FIA chooses a prominent member of our industry to wear the kilt at our London IDX Futures for Kids Gala in June to raise money for charities that support disadvantaged youth.

Rama has taken up this challenge with gusto and has already promised to break last year’s fundraising record set by Robert Booij of ABN Amro last year. I hope the Asia derivatives industry can give Rama a good head start on his philanthropy and donate generously today. You’ll be sending some Good Karma to our friend Rama!

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