June is the month when millions of young people graduate and enter the next phase of their lives. Earlier this month, I attended my oldest son’s high school graduation, and the experience filled me with both pride and trepidation. Watching this young man grow up has been the pride of my life. While I am sad he’s leaving home (he’s off to Boston College in the fall), I know that big things await him and that his growth requires us to let him go off in the world.
I thought about this graduation analogy when FIA announced a major milestone in the development of FIA Tech, our subsidiary that provides technology services to the listed derivatives industry.
In case you didn’t see last week’s news, 10 global clearing firms invested a total of $44 million in FIA Tech to help in the development of the next generation of industry solutions. This transaction was the culmination of years of thoughtful deliberation by the FIA board to find the best way to fund this company’s growth, and it is a big step forward in our efforts to modernize the post-trade infrastructure of our industry. This announcement felt like a graduation of sorts after years of nurturing and preparation.
FIA created FIA Tech in 2007 to solve several problems related to give-up trades. At that time, the practice of customers using different brokers to execute and clear trades was becoming the norm. Enabling give-ups—which allow executing brokers to "give up" a trade to clearing firms—was a terrific improvement from the customer perspective, but it added operational complexity and risk to the trading and clearing workflow.
As the trade association for the industry, we understood the problems and we saw an opportunity to deliver solutions by creating an industry utility. FIA had already worked with its members in the mid-1990s to develop a standardized legal agreement, which set out the rights, obligations, roles, and fees for all parties involved in a give-up trade. The creation of FIA Tech took that agreement online, giving users all the benefits of migrating from paper to digital documentation. FIA Tech offered the complementary service of collecting the brokerage payments that accompany these agreements, greatly reducing the delays and inefficiencies in that process.
FIA Tech has grown significantly over these last 14 years. The give-up services now process more than 1.2 billion contracts annually, and FIA Tech has added other services such as regulatory compliance tools and data reference products. Today more than 8,000 market participants globally utilize FIA Tech’s services.
One reason FIA Tech has succeeded is its mutualized governance structure. We always envisioned the company as user owned and focused and we made sure that its core customers, namely the clearing firms that manage the post-trade process, were central to its governance. Keeping the governance of FIA Tech in the hands of its customers was strategically important for the FIA board, ensuring that its priorities were aligned with the broader industry.
We have done a great job incubating the company, but now it is time to move to the next phase of growth. As a not-for-profit trade association, FIA has reached the limits of its ability to fund industry solutions at scale. This transaction will give FIA Tech the capital it needs to enhance its existing products and develop new products to meet the future demands of our industry.
Financial industry executive Richard Berliand will serve as an independent director. Richard was chair of the FIA board in 2007 when FIA Tech was created. His agreement to join the new venture will provide some helpful context and experience for the next phase of the company’s growth.
This announcement comes at a crucial time for our industry. The volatile markets of the last two years have shown the need for modernizing certain operations, standards, and technology. Earlier this year, we announced the operations and standards initiative, which aims to work with the full spectrum of market participants on standardizing the end of day trade and clearing process. That includes customers, technology vendors, exchanges and clearinghouses as well as executing brokers and clearing firms. This multi-year endeavor seeks to create a more uniform operating system for the industry, streamline the clearing process and eliminate end-of-day bottlenecks. We strongly believe that modernizing the operating system will improve day-to-day efficiency and strengthen the resiliency of the derivatives markets during periods of high volatility.
FIA is excited by both of these initiatives and will watch with parental pride as FIA Tech takes on bigger challenges for the industry. We can’t wait to see what’s in store!
- Industry Operations
- News & Commentary