Thank you, Bill and Ian. I appreciate all the good work and leadership that you all and the FIA Asia board provide for our industry. A special note about Bill who finished among the top ten participants for the SGX Bull Charge for charity last month, logging more than 350 kilometers over those two weeks. That is an impressive feat!
Good morning everyone and welcome to the FIA Asia Derivatives Conference. I’m Walt Lukken and I want to thank you for being a part of the FIA community during these challenging days. As you can see from my surroundings, I’m coming to you live from Washington DC, but my heart is in Singapore. I’m disappointed I cannot be with you in person because the FIA Asia conference always is a highlight that caps off the year for our industry.
I am feeling a bit nostalgic about not being in Singapore?
- I will miss getting off a 24-hour flight to be greeted by Singapore’s Christmas lights and music and the St. Regis Christmas tree.
- I will miss attending the SGX after-party where I have swallowed my pride to have my head cut off by a magician or dress in disco clothing.
- I will miss having monkeys steal things from my golf cart at the or charity golf tournament for Futures for Kids.
- Most of all, I miss seeing all the FIA members from Asia who represent and support the largest growth region in the world.
What a chaotic year it has been! Who would have thought a year ago that we would experience:
- A global pandemic and ensuing economic shutdown,
- A highly contentious US election and post-election uncertainty,
- The UK and Europe still working through their divorce,
- And several major natural disasters tied to climate change?
I think we all can agree that 2020 cannot be over soon enough.
But what’s notably not on this parade of horribles is our markets. I am proud that our industry worked tirelessly during the crisis to ensure our markets stayed up and running.
The term resilience is thrown around a lot to describe our industry, but it is important to understand what goes into becoming resilient. Resilience doesn’t just happen; it is earned.
We earned this badge of resilience because our community has done the small stuff…the behind the scenes work…the non-sexy plumbing. We have engaged with the global regulatory authorities over the last decade to strengthen rules, to probe assumptions, to game theory worst-case scenarios and to test our readiness in good times and in bad.
But these improvements had not been tested in real time. That is until last spring when extreme market volatility provided a real-world stress test.
The good news is that our markets proved to be robust.
Despite extreme market turmoil, there was no collapse of confidence, no breakdown in the clearing system, and markets remained open and fully functioning throughout.
We earned this resilience-in large part-by the efforts of market participants and regulators working long hours together to keep the markets open. You all should be applauded.
That said, we would be remiss as a community not to reflect on this Spring’s volatility to see if there are lessons learned.
FIA members have been meeting since March to review ways to improve the resilience of the clearing system, including analyzing end of day settlements, allocations, and trade-breaks.
FIA is working with firms and exchanges to improve and automate processes and standards, so we are prepared for the next period of volatility.
FIA also analyzed how the margin system functioned during March. To help bring transparency to this topic, FIA recently launched a CCP data tool on its website. This tool publishes public data and visuals on margin levels, default funds and other CCP waterfall information.
Additionally, FIA recently published a white paper that examines the increases in initial margin at derivatives clearinghouses during the March timeframe.
While margin increases are expected during volatile times, we must make sure that margin levels are calibrated to be predictable and not overly procyclical, adding undue stress during these times of market turbulence.
FIA’s paper makes several suggestions, which aim to promote an important dialogue within the industry and regulatory community on whether improvements need to be made. Only through this self-reflection can we continue to earn our resilience.
While we must learn from our past, we must also look with determination and hope to the future and there are plenty of challenges facing our markets and global economy in a post-Covid world. One topic of particular focus is climate change.
It is difficult to dispute that climate-related disasters are occurring on a more frequent basis. Over the last two years, global losses caused by natural catastrophes amounted to a record $640 billion annually.
For an industry obsessed with data, there is a significant body of evidence that climate risk is a growing threat to financial stability and the global economy.
Market-based solutions are an important component to unlocking this problem. I have seen time and time again how this industry takes uncertainty and turns it into opportunity.
It was our industry that created foreign currency and financial futures when the world went off the gold standard in the 1970s.
It was our industry that brought us electronic and cross-border trading that democratized our markets around the globe, including the CME-SIMEX mutual offset system in the 1980s.
And yes, it was our industry that that first listed green products on trading platforms to help us transition to a cleaner planet, like the listing of sulphur-dioxide allowances in the 1990s and carbon markets of today.
FIA recently published a policy paper entitled, "How derivatives markets are helping the world fight climate change.” The paper highlights existing industry solutions and potential partnerships to help build a more sustainable economy.
FIA is also taking part in a Taskforce on Improving Voluntary Carbon Markets, under the sponsorship of Former Bank of England Governor Mark Carney, now Special Envoy for Climate Action at the UN.
FIA anticipates this issue will be a major source of policy discussion in Asia, Europe, and the US as the Biden Administration begins their work early next year.
We understand there is no silver bullet, but we need to be creative on ways to address the problem. At FIA, we believe that markets must be at the center of any solution. I am proud to be a member of an industry that has stepped up to these kinds of challenges in the past and faced them head on.
I’ll conclude by saying how excited I am by this year’s FIA Asia virtual program.
I am thrilled that CSRC Vice Chairman Dr. Fang Xinghai will join me for a fireside chat later today where we will discuss the opening of China’s markets, the CSRC’s priorities, climate change and more. You will also hear from Hong Kong Exchange CEO Charlies Li, who will discuss his impactful legacy as he departs his role, and SGX CEO Loh Boon Chye, who will talk about his vision for the future. We are also excited to have CFTC Commissioner Dawn Stump, who chairs the CFTC’s Global Markets Advisory Committee. She will sit down with FIA’s Bill Herder for an insightful talk.
I also invite you to check out our virtual trade show with many companies on display, and if you collect all of the secret words from each booth, you are eligible to win a $500 Amazon gift card. Please stop by and see these wonderful companies.
Most importantly, I want to thank our sponsors and exhibitors that make all this possible. I personally appreciate your support for our industry, especially during this time.
FIA Asia has always been a time that our community comes together to debate and shape the future of our industry. Now more than ever, I appreciate your support for this incredible industry and the people who make up this community.
With that, I hope you enjoy the conference. Thank you.
