Thank you, David, for that kind introduction.
I appreciate your leadership and that of the Asia Advisory Board.
This is David’s last year as chair of the FIA Asia Advisory Board and I want to recognize him for the tireless work that goes into that role. Please join me in a round of applause.
Welcome to the 15th annual FIA Asia Derivatives Conference, the last 11 having been here in Singapore. One little-known fact—FIA’s own Bill Herder is the only individual to have been to every FIA Asia conference over the last decade and a half.
Actually, it’s not a little-known fact because Bill tells everyone about it. And there is really no way for us to fact check this…so as they say, it may be fake news!
To settle this once and for all, we are going to conduct an audience survey.
Please get out your FIA Connect app, select this morning’s session to get to the survey question. Everybody ready? Okay, here’s the question—
Is Bill Herder the only person to have been to all 15 FIA Asia events?
A) No, I also have been to all 15 events. And I think I’ve seen Rama there as well.
B) Yes, I believe Bill Herder because he scares me, and I hope he now stops talking about it.
C) I can’t believe I paid money for this.
Thank you for testing out our survey function and for finally settling this issue once and for-all.
FIA’s first Asia conference was held in Beijing in 2005 where I attended in my role as CFTC Commissioner. Fifteen years later, China is still dominating our discussions at this conference for various reasons.
You cannot discuss the Asia region without mentioning the unrest in Hong Kong. Many of our members here today are from, work or live in Hong Kong and we remain hopeful for a peaceful resolution to the protests happening there.
This unrest provides an uncomfortable backdrop as China aims to find a resolution to its US Trade negotiations and continues down a path of opening its financial markets to foreign participation.
Three weeks ago, I attended the 16th annual meeting of the CSRC International Advisory Council in Beijing. Led by CSRC Chairman Yi and Vice Chair Fang, this forum provides important access to the highest levels of Chinese authorities who are seeking advice on ways to improve their markets.
My sense coming from these meetings is that China remains committed to opening its markets.
Importantly, this commitment extends to the highest levels of government.
The motivation behind opening its markets is not to benefit the rest of the global economy, which it certainly would. The main motivation is that opening its markets benefits China.
We often forget that—despite being the 2nd largest economy in the world—China still has a per-capita GDP less than Mexico. And an aging populace that will make it difficult to maintain productivity and economic growth at current levels.
To overcome this, China recognizes that it needs a well-developed financial system to fuel and allocate the capital investments it will need over the next 30 years. Partnering with foreign financial firms and encouraging outside capital will help expedite this transition, and derivatives look to play an important role.
Already, we have seen significant progress.
First with the formation of stock and bond connect programs between the Mainland and Hong Kong…and now London. Foreign traders now have access to Chinese futures products in crude oil, iron ore, plastics and soon agriculture.
Ownership restrictions on securities and futures firms have been loosened and removed.
Building on this progress, our CSRC meetings discussed the importance of diversifying the Chinese futures markets away from retail to more institutional participants like pension funds as well as domestic and foreign banks.
We also discussed how China should develop its regulatory framework for cross-border business, using the regulatory recognition approach developed over the last four decades.
On this point, Singapore is great example of how jurisdictions can work together to create a regulatory system that fosters cross-border business.
Launched in 1984, the Mutual Offset System between CME and SIMEX was one of the first cross-border platforms to allow traders to enter a trade on one exchange and liquidate on the other. The underpinning of this arrangement was an understanding by the two national authorities that exchange rules and home-country regulations were comparable, protecting local markets and their participants.
This kind of recognition system has been fine-tuned over the last 40 years into a global standard by which most cross-border derivatives business is conducted today.
Why does this matter to China and the rest of us? Because a vast amount of business on derivatives exchanges comes from foreign participants.
Last year, we surveyed global exchanges showing anywhere from one-third to ninety percent of trading volumes come from outside their home countries. Our markets are thriving largely due to cross-border business, despite the frayed trust among governments around the world.
Indeed, there is a great deal of political uncertainty in the world right now.
Whether it’s US Impeachment, the Hong Kong protests, or the march toward Brexit, we are facing significant political uncertainty. Three leading universities have created an uncertainty index that shows political risk at record high levels, hitting its peak in August.
For example, the uncertainty surrounding Brexit is testing the cross-border recognition system.
With the UK expected to leave the EU soon, the financial center of Europe will soon be located outside of its legal borders. To address this reality, the EU is currently implementing its regulatory treatment of third-country CCPs through EMIR 2.2 to ensure cross-border trading and clearing can continue post-Brexit. The US also has proposals on how foreign CCPs should be treated and recognized. These proposals put us at an important crossroads.
We urge regulators to reaffirm this recognition approach and resist a more direct regulatory path that could lead to duplicative oversight. It’s extremely important we get this right.
These proposals could set precedent for how our markets develop cross-border for years to come.
This has obvious implications for this region, which is becoming more and more important to our industry globally.
Consider the fact that trading volume on Asia-Pacific exchanges was 12 billion contracts for year to date, up 32% from the previous year. In contrast, trading volume in North America was 8.8 billion and in Europe 4.3 billion, and the growth rates in both regions were negative year-over-year. If the current trends continue, the number of contracts traded on Asia-Pacific exchanges will be larger than Europe and North America combined by the end of 2020.
The message is clear: Asia-Pacific is the largest and fastest growing region in our industry.
That makes it imperative that we continue to build a strong foundation for cross-border access into these markets.
FIA will continue to be a thoughtful advocate to preserve this cross-border regulatory approach that has successfully served this industry and region. Advocacy on issues like cross border access has been central to FIA’s mission for more than 50 years.
FIA works tirelessly to inform regulators around the world of better ways to approach problems and implement laws. There are some notable advocacy advancements over the last year since our last Asia conference—
- For example, the Basel Committee and US prudential regulators are now recognizing the exposure reducing effects of cleared derivatives and are addressing the punitive capital charges on clearing;
- In another exciting development, the Japanese clearinghouse JSCC just announced its decision to address its uncapped liability for clearing members after productive discussions with FIA and its members;
- And in Europe, FIA asked and was granted relief….TWICE…for UK CCPs that will allow EU customers to access these markets during the Brexit transition.
But advocacy is only half the picture.
FIA does so much more—whether it’s:
- Developing standards and best practices;
- Implementing operational efficiencies; or
- Offering online compliance training on exchange rules, including the soon-to-be launched SGX courses.
In other words, FIA is a solutions organization with a growing toolbox at your disposal. These solutions are focused on the needs of our members.
After all, our members are where we find our priorities, where we gain our culture and how we measure our success.
Before I turn to our conference, I want to thank our sponsors and exhibitors for their support
This conference would not be possible without them. I also want to thank Bill, Pauline, Min and Stella here in Singapore for putting together another great conference. The Asia staff does incredible work for our members throughout the year.
This year’s conference features a great lineup of speakers and topics that explore the challenges and opportunities in this region and beyond.
We are pleased to have CFTC Commissioner Dan Berkovitz, exchange and clearinghouse leaders as well as many other global and regional experts.
A signature of the Asia conference is the “Great Debate”, which is occurring tomorrow morning.
Like always, there will be barbs, insults, bribes, props, dirty tricks and low blows—sounds like my golf foursome on Friday.
At each of our conferences, we give back to those less fortunate by making charity an integral part of our program. Over the last ten years, FIA Cares has raised millions around the world to help those in need. Asia has played its part through the Charity Golf event benefiting Futures for Kids on Friday. Please see Bill Herder for details. We hope you will join us!
And now to get things started, please welcome back to the stage David Martin, Chair of the FIA Asia Advisory Board who will lead a distinguished panel of exchange leaders.
- Speeches and Testimony