Viewpoint – Issues to watch in global derivatives markets 

From cyber risk to crypto to commodities, 2023 is shaping up to be a big year

2 February 2023


With the turn of the calendar to a New Year, it's a great opportunity to reflect on past accomplishments as well as the road ahead. And while gathering with representatives from FIA's member firms across January, I heard a lot of ambitious plans – as well as serious challenges– that will be the focus of the year ahead. 

Global cleared derivative markets are made up of a wide variety of participants, from different geographies and different business disciplines. But surprisingly, many of my conversations to start 2023 have focused on a few key priorities. 

Here are some areas that FIA is watching, which will guide much of our work across the next year: 

Cyber Security Wakeup 

We’ve talked about it for years and the day has finally come. As this article goes to press, one of our industry’s critical software providers has reported a cyber security event that has caused disruptions in the exchange traded derivatives markets. While the extent of the incident is fluid, this may be the “stone in the pond” moment that ripples through the industry and changes our approach to third-party critical systems. Market participants will no doubt be shoring up their cyber protections. Regulators are also likely to take more interest in how markets are protecting themselves from these occurrences, which sadly, are happening more frequently. 2023 may be our industry’s wakeup call on this topic. 

Crypto Regulation Cometh 

Another obvious issue to watch is the evolution of crypto regulation after the dramatic failure of FTX. In Europe, the much-debated Markets in Crypto-Assets (MiCA) Regulation comes into force in the first half of 2023, and just this week the UK has also proposed sweeping regulations for crypto markets. Meanwhile, the US Congress went back to the drawing board on its bi-partisan crypto legislation after the FTX collapse and is very likely to introduce its own structure for crypto regulation in the coming months. Additionally, the new Republican majority launched a new arm of the powerful Financial Services Committee, with a dedicated subcommittee on digital assets and financial technology. The world is closely watching the MiCA rollout and Congress’ approach to bringing the crypto world into the regulated space in 2023. Expect legislative developments in the year ahead. 

To Intermediate or Not  

There was so much attention on the implosion of FTX last year that many overlooked the broader market structure evolution raised by FTX’s disintermediated market model. Some traditional exchanges have taken note and either bought or started their own FCM to create a "full stack" approach to their operations. The potential gains in efficiency come with a serious price, however, as we witnessed with the FTX crisis. Lost in this approach is the compartmentalization of risk and independent checks that come with an independent intermediary. Natural conflicts of interest arise, particularly for organizations with self-regulatory authorities. FIA knows the importance of reducing operational frictions and settlement times and is a big supporter of these market efficiencies. But the industry must engage honesty about the trade-offs that come with certain efficiencies that shortcut existing protections for the system. Next year may see this topic come to a head. 

Commodities and Sustainability Crossfire 

Global supply chains were already strained by COVID-19 before Russia's aggression in Ukraine upended physical commodity markets last year. Throw in global pressure to move to a carbon free world and we are in for a wild ride in the commodities markets over the long run. Many economists are predicting another "supercycle" for commodities in 2023. Undoubtedly, we should expect markets to do what markets do: Discover prices. But sometimes prices discovered on our markets cause hardships among citizens and angst among politicians. FIA’s mission is to ensure markets are orderly and reflecting supply and demand. Efforts to artificially influence prices, like price caps, cause market distortions and supply disruptions. In 2023 FIA will continue to make this a priority and I expect the interplay between commodity markets, sustainability and the real economy to remain a key issue in 2023 and beyond. 

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