Viewpoint - Amid Asia's record growth, remember customers come first

It's when the derivatives industry thinks of itself as an "industry" first that we often get into trouble

2 March 2020


One of the best parts of my job is meeting fascinating people who speak at FIA's conferences. I've had the privilege of hanging out with some amazing individuals— whether that's U.K. Prime Minister David Cameron, U.S. Secretary of State Condoleezza Rice, or even CBS News Anchor Dan Rather. But one of the wisest of our speakers was someone you may not know—Singaporean Ng Kok Song.

Kok Song is one of the founding fathers of our modern futures and derivatives markets, having helped develop the first cross-border exchange link between the U.S. and Singapore when serving as SIMEX chair in the early 1980s. That link still exists today over 35 years later between CME and SGX. Kok Song went on to serve for many years as chief investment officer and chair for Singapore's sovereign wealth fund—GIC.

At an FIA event a few years back, I had the privilege of interviewing Kok Song. I asked him for some words of wisdom for our markets. He said something that really struck me.

In an almost admonishing tone, he told us that the problem with the modern futures and derivatives industry is that it forgets that it is not an industry. He told the audience that we mustn't forget that these markets exist—not for their own purposes—but to serve the customer and the broader economy.

This may be an obvious "duh" moment for readers, but the derivatives markets are, well, derivative. These markets were created to serve Main Street businesses, energy companies, pension funds, agricultural producers and lenders who need to manage risk and discover prices. And it's when our industry thinks of itself as an "industry" first and loses sight of our customers that we get into trouble.

I am proud to say that FIA is constantly working with its members to improve markets and ensure they are safe, efficient and competitive for the benefit of customers and society.

Kok Song would also be interested to know that based on current volume trends, 2020 will likely be the year that Asian derivative markets become larger than both North America and Europe combined! To be fair, it's hard to know for sure what the impact of the coronavirus will be on Asian markets in 2020. However, 2019 volume figures show 14.5 billion derivatives contracts traded in Asia, up about 29% over the prior year and only a hair behind the combined volumes of North America (10.3 billion) and Europe (5.0 billion). That's a whole lot of new customers, and it's our responsibility to make sure we are serving them well.

While global derivatives markets posted another record year of futures and options volume in 2019, local volume in both North America and Europe declined slightly year-over-year. These traditional centers are certainly just as important now as they ever have been, but clearly Asian growth is worth keeping an eye on in 2020.

We should also acknowledge the up-and-coming status of Latin American derivatives markets. Though still behind Europe in total volume, 2019 featured another year of impressive growth as volume soared 46% to 4.1 billion contracts in the region.

You'll find much more insight into this data in our annual review of market volume statistics. The vibrancy of our markets is undeniable after futures and options volume tallied almost 34.5 billion contracts in 2019— a 13.7% jump over the prior year—but I'm sure you'll find detailed trading statistics that are even more interesting than this headline number.

FIA is committed to building a bright future for our markets and is using data to guide us along the way. Our mission is to support open, transparent and competitive markets, and ensuring market participants have fair access to that data is crucial to that mission. Data is at the center of serving customers in modern derivatives markets. And hopefully, after reading this issue and learning about our plans for the year ahead, you'll see proof that it's at the center of FIA, too. I know Kok Song would approve.

Walt Lukken is president and CEO of FIA.

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