'Never daunted,' the derivatives industry continues to persevere

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

14 March 2023

Opening remarks of Walt Lukken, President and CEO of FIA, at the International Futures Industry Conference in Boca Raton, Fla., on 14 March 2023. As prepared for delivery.


Welcome back to sunny Florida!

I'm so excited to be here with you for our 48th annual Boca International Derivatives Conference.

A special welcome to the international regulators, who are back here in full force for the first time since Covid. We have over 65 of our friends from around the globe in attendance. We also have more than 40 exchanges and trading venues in attendance. Thank you all for being here.

Now, is it me or does it feel like we are living in dog years since the pandemic? I swear I have aged 7 years over the past 12 months.

Things are moving so fast. And last year was not for the faint of heart.

Since the start of 2022, we have witnessed the largest military invasion in the last half century, the biggest jump in inflation since the 1980s, and the highest interest rates in 50 years. In case that wasn’t enough, we saw a historic move in the price of nickel, which almost took down a marketplace that has been operating since the 1800s.

And right here at Boca last year, we were captivated by the rise of the crypto industry and the new ideas challenging traditional finance. I even bought an FIA hoodie! But only six months later, we were dumbfounded by the catastrophic implosion of FTX and its outspoken leader.

Did I mention the cyber-attack our industry suffered a month ago, that could have paralyzed our markets? My goodness! What a year!

But I’m pleased to report that even amid these challenges, we continued to grow and innovate. In fact, global ETD volumes last year increased by 34%, which was the 4th consecutive record for our markets.

This multi-year growth story—despite recent headwinds—is a testament to our industry’s resilience, and the perseverance of our people.

That’s why it’s great to be back in Boca! The positive energy and high spirits here are proof our industry continues to grow and evolve.

As they say, what doesn’t kill you makes you stronger – and last year gave us some pretty good battle stories. The collective wisdom gained from these market challenges has helped us learn and improve.

To prove my point, let’s start with some audience participation and show off our scars.

  • Please raise your hand if you were in the industry during MF Global’s demise in 2011, or the Lehman Brothers collapse in 2008.
  • Keep your hands raised if you were in our business in the late 1990s during Long-Term Capital Management, Sumitomo, or Barings?
  • A little harder, but keep your hands raised if you were in our industry during the 1987 market crash?
  • All right...last one—which of you old buzzards were here for the Hunt Brothers?

Thanks for playing along. But the point I want to now make is a serious one: There is so much human capital and wisdom here in this room.

Historic challenges have been institutionalized into our people, our markets and our regulations.

Our collective immune system is stronger after living through these market disruptions.

If you don’t believe me, here’s a reminder of improvements implemented in the wake of past crises:

  • Strengthened customer segregation and protections
  • Improved margining practices
  • More clearing and transparency for OTC derivatives
  • Stronger capital requirements for brokers
  • Better audit trails and data on trading

Some of these improvements were due to regulation. But most were industry driven and supported by the people in this room.

Why? Because we all agree it is in the best interests of our industry to have high standards and smart regulation.

We are better, safer, and stronger for it.

Resiliency and cyber risk

This resilience was on display with the recent cybersecurity incident at ION a few weeks ago.

I would make the case that it was seasoned risk managers—using human judgment—that helped us manage this disruption. Our industry gathered within hours of the incident to centralize information, encourage calm, share best practices and hear each other out. By the end of the week, over 700 people were on our calls making sure our markets remained open.

As I shared last week before the CFTC, I am proud of our industry’s response to this incident, and how we rose to the occasion to quickly address this challenge.

I saw risk managers help the industry through the crisis... People like Chris Edmonds of ICE, Lee Betsill of CME, Dale Michaels of OCC, Dmitrij Senko of Eurex, and many others.

Exchanges listened to customers, and CCPs kept clearing windows open when needed.  There were no auto-liquidations, technical defaults or algorithms directing the situation. This was old-fashioned risk management, using human experience and judgment.

There are certainly lessons to be learned here. Last week FIA announced the formation of a Cyber Risk Taskforce that will pull together market and cyber experts to analyze ways we can improve the resilience of our markets. We will also work closely with regulators to ensure there are no gaps in cyber protections and business continuity procedures.

It’s too soon to recommend specific actions after the ION disruption. But this seems to be the “stone in the pond” moment that ripples through our industry. Just as past disruptions have sharpened our focus, I’m confident we will identify new ways to reinforce the resilience of our markets and learn from this event.

Looking beyond cyber risks, another ongoing effort to improve our industry’s resilience is the Derivatives Markets Institute for Standards, or DMIST. This effort grew out of the backlog of cleared trades during the economic shutdown of March 2020.

DMIST is taking on such sexy topics as settlement time frames, trade reference data, and average pricing for allocated trades.  Mundane to some … but critical for our industry right now. This independent standards body just published its second annual progress report, with the aim of improving how our industry operates post-trade. And the benefits will be significant, as they will simplify our industry’s ability to manage through a crisis.

One final note on resilience. There has been a lot of discussion recently about disintermediation. Some crypto exchanges, and even traditional exchanges, have either bought or started their own FCM.

While there may be operational efficiencies from a "full stack" approach, there are also trade-offs. To quote Mark Twain, if you put all your eggs in one basket, you better watch that basket.

The value of an independent intermediary should not be forgotten in this debate. Intermediaries provide checks and balances and natural firebreaks for the derivatives ecosystem.

FIA strongly supports improving operational efficiencies. But the industry and regulators must be frank about the trade-offs here.

Conflicts of interest arise from putting all the functions of the trade lifecycle under one entity. We saw the consequences of that first-hand, through the demise of FTX.

FIA is committed to leading industry dialogue around these important issues.

Clearly our markets have been through a lot in the last year. And who knows what the rest of 2023 will bring. But I strongly believe that whatever happens, we’ll come through it better on the other side. 

'Never daunted, we cannot falter'

This month marks the start of one of the best sporting events around—March Madness. Like the World Cup, this college basketball tournament is not for the faint of heart.

Although not a number one seed like John Lothian's Purdue, my alma mater Indiana University — the Hoosiers — are in the tournament to my great delight.

In thinking about our Industry's resilience over the weekend, I was struck by a line from Indiana's fight song that encapsulates my feelings about our industry's perseverance.

The Indiana fight song crescendos to the phrase "Never daunted — we cannot falter." I love that. "Never daunted — we cannot falter." In my mind, that perfectly sums up our industry and its people.

That is why I love our industry.... and Indiana basketball.

The future of our markets falls to us. We all must be stewards of this vital ecosystem; we all must be risk managers that nurture its growth.

Especially the younger folks, who put their hands down quickly at the beginning of my speech. You are the next generation of leaders, who will support this industry though the challenges ahead.

In this spirit, I’m pleased to announce FIA’s first annual President’s Award. We are honoring six individuals for their work to improve and strengthen our markets.

These leaders were chosen for their creative problem solving, hard work, and professionalism in advancing FIA’s mission.

We thank them for volunteering for projects that benefit the entire industry. That commitment to giving back is worth celebrating.

These leaders give me confidence about the future. They remind us that we are all in this together—through good times and bad, as one community.

The mere fact we are celebrating our 48th Boca conference means something about our industry — about the people in this audience, and about those who have come before us.

It means we persevered. It means we innovated. It means we improved.

And it means that whatever the future holds, our industry has what it takes to rise to the occasion.

I’m confident that 2023 will bring even more growth and success for our industry.

Thank you

My remarks represent the starting gun of Boca. Before you know it, these three days of speed dating with clients, cocktailing with colleagues, and engaging with new partners will be over.

So, before the craziness begins, I want to pause to thank all of you. Thank you for being FIA members, and for attending Boca.

In particular, I want to thank our amazing sponsors and exhibitors. Please give them a hearty round of applause.

Our program has many insightful speakers, starting with the exchange leaders roundtable right after this. I will ask the crew to begin setting up for that panel.

I can’t wait to see this amazing group on the stage together. It really is the dream team!

Tomorrow is also loaded with remarkable speakers, highlighted by political pundits Karl Rove and Donna Brazile at the ICE Energy Breakfast, CFTC Chair Russ Behnam, and geopolitical risk expert Ian Bremmer at the DTCC lunch.

Also on Wednesday we will finish the day with our Hall of Fame celebration. Please join me in honoring these icons of our industry.

These individuals are great examples of the wisdom and leadership that have made our markets so successful.

There’s clearly a lot in store at this year’s Boca. So without further ado, I’d like to invite CNBC’s Bob Pisani and the exchange leaders to the stage to kick us off.

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