Major derivatives exchange leaders discuss key 2023 trends

At FIA Boca, nine CEOs discuss cyber risk, regulation, China's re-opening, and more

15 March 2023


exchange leaders roundtable
At FIA Boca, nine leaders of major derivatives exchanges discussed key issues and trends in our markets. (CLICK TO ENLARGE)

A star-studded and wide-ranging exchange leaders roundtable at the 48th annual FIA Boca conference featured nine executives from leading global derivatives exchanges.

Moderated by CNBC's Bob Pisani, the lively discussion touched on the recent cyber disruption in derivatives markets, opportunities created by the re-opening of China's economy, the global regulatory outlook, innovations in financial technology, the collapse of FTX, and much more.

Here are some of the highlights from the 90-minute roundtable. 


Critical risk management functions 

Edward Tilly, chairman and CEO of Cboe Global Markets, noted that global derivatives markets have been resilient even amid recent spikes in volumes. 

"As the investors of the world are investing in known unknowns, such as rising rates, the ability to transfer and manage risk has been seamless," Till said. "Operationally, it's what we do. It's what we scale up for and it's what the system is hardened for." 

Terry Duffy, chairman and CEO of CME Group, echoed those statements of resilience even under short-term stresses. In fact, he noted that 13 March was the busiest day in CME's history thanks in part to interest rate-related products being traded in the wake of the recent collapse of Silicon Valley Bank. 

In moments like this, cleared derivatives markets prove their value to the rest of the financial sector and to the global economy, he said. 

"When you have disruptions in the marketplace, people need to make sure they are mitigated and that they are managing risks," Duffy said. 


Resilience under pressure 

Adena Friedman, chair and CEO of Nasdaq, noted that financial markets "have been put to the test several times over the past three years," across the COVID-19 pandemic and the war in Ukraine, among other concerns. However, she noted that global exchange-traded derivatives markets have not just risen to the challenges but have thrived over that period. 

"What we're really demonstrating is the strength and resiliency of regulated markets," said Friedman. "We focus a lot on the resiliency of our system. We make sure that the markets are there to operate on behalf of investors. And this is when we shine." 


Lingering impacts from Russia's invasion of Ukraine 

Stephane Boujnah, CEO and chairman of the managing board at Euronext, offered a European perspective that looked beyond the obvious impacts of the Russian invasion of Ukraine such as commodity market volatility. That includes the custody business, and dealing with frozen assets. 

"Anyone who holds Russian assets under sanctions that are frozen, the future of this is uncertain. When those assets move from frozen to seized, and what happens to those monies, has a huge impact on the balance sheet of those companies," Boujnah said. "Even if the war is over some day, there will have to be a discussion about what to do with this money."  

David Schwimmer, CEO of London Stock Exchange Group, noted that what makes his exchange different than some of the other trading venues is its focus on data and technology. That includes its World-Check "know your customer" and anti-money laundering solutions platform, offered by LSEG's Refinitiv arm. 

"After Russia invaded Ukraine, we saw 800% growth in World-Check KYC and AML, as a result of the world responding to a higher level of sanctions," Schwimmer said. 


China's re-opening  

Looking elsewhere around the globe, Hong Kong Exchanges and Clearing CEO Nicolas Aguzin, noted that the reopening of China's economy after its strict COVID-19 shutdown across the last few years is "one the most significant economic impacts that we'll see this year." 

At HKEX, he noted, trading flows in the first month of 2022 were equal to roughly all of last year's volume combined. That's not surprising considering the scale of the China story. 

"A statistic I like to share is that over the last 2.5 years there has been $2.5 trillion in U.S. dollars in excess savings that have been accumulated and are now getting ready to be deployed again," Aguzin said. That capital is coupled with a bit more certainty around the local government in China and positive speeches that "put an emphasis on the private sector." 

Loh Boon Chye, CEO of SGX Group, noted that while China's economy and markets may have seemed closed to some on the outside "to SGX, our customers and ecosystem, they were not closed" over the last few years. And beyond China, he noted that four of the top 10 economies globally are located in Asia – providing a strong long-term foundation for future growth beyond the short-term boost of re-opening. 


Cyber risk 

In reference to the recent ION cyber incident, Terry Duffy of CME noted that cyber risks are persistent in derivatives markets – as they are in many other arenas – and are impossible to prevent completely.  

"You can throw all the money you have at it, and you still can't fix it. You can only do your best and figure out different procedures and protocols to harden your system," he said. 

Stephane Boujnah of Euronext echoed this sentiment, noting that the recent event was a wake-up call that reinforces the importance of building culture where everyone is expected to be vigilant and prepared instead of taking cyber safeguards for granted.  

"We need to avoid the risk of things becoming routine," he said. "The enemy is routine." 

Michael Peters of Eurex noted that the process is deceptively simple: "protect, detect, respond, and recover." However, it's also important for the derivatives industry to have an honest conversation about the companies that indirectly place them at risk – particularly at a time of stress. 

"Flow to the price discovery operators that are sitting should be taken into consideration," he said. "Otherwise, we no longer provide the function that we should."  

He also noted the importance of efforts like FIA's recently announced Cyber Risk Taskforce that "allows for exchange of information between CCPs that are equally affected and globally positioned." 


Market structure innovation 

Jeff Sprecher, chair and chief executive officer of ICE, noted that FTX's collapse has validated some of the concerns expressed by traditional exchange operators a year or two ago.  

It wasn't that he and others were just being "old fuddy duddies" who simply wanted to protect old institutions and stifle innovation, Sprecher said. When he and others raised concerns about auto-liquidation algorithms, "we were having a conversation about risk management." 

"Having a little human judgement in the system, and the time to take a breath is how this system operates," Sprecher said. 

Regarding blockchain innovation, Loh Boon Chye of SGX noted that there are interesting areas of potential for this technology around issuance or registration, but we are a long ways away from widespread adoption. 

"The ecosystem takes time to build, and the market trust takes time to build," he said. 


Regulatory environment 

David Schwimmer of LSEG said global regulatory fragmentation is "one of the big tensions and one of the big themes we all have to address" as an industry. 

"We are in an environment where we're seeing fragmentation because of politics and geopolitics, but it's better for business to have freer flows of capital," Schwimmer said. "It would be great if the regulators could cooperate more."  

Adena Friedman of Nasdaq also urged "caution on regulatory overreach." 

"We should be very careful and cautious of unintended consequences of regulatory change," she said. "It would be much better to take an iterative approach." 


The rise of retail  

Discussing recent spikes in retail derivatives markets activity, Cboe's Ed Tilly said the future still holds continued growth potential since many of these new investors are proving to be "sticky." 

"We're teaching investors how to define their outcome," he said, which speaks to the core function of risk-management in global derivatives markets. "Customers in retail are engaging with this, and it's an incredible opportunity." 

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