FIA Polls the Audience on Cryptocurrencies, the Financial Crisis and Volatility in the Markets

The Futures Industry Association (FIA) held their annual Boca conference last week in Boca Raton, Florida. This year FIA polled the audience throughout the panels to gauge the attendee’s sentiment on everything from the financial crisis to volatility in the markets to who owned cryptocurrencies.

A Ten-Year Anniversary

One of the main themes of the conference was the 10-year anniversary of the financial crisis. FIA President Walt Lukken moderated a panel with Barney Frank, one of the politicians who co-authored the Dodd Frank legislation in response to the financial crisis, along with Paul Atkins, former Commissioner of the Securities Exchange Commission, Craig Donohue, Executive Chairman and CEO of OCC as well as Thomas Russo, Former Executive Vice President & General Counsel of American International Group (AIG).

While derivatives were scrutinized after the financial crisis, it was Donohue who reminded the audience that this industry was working in an orderly fashion.

“It’s worth noting that the futures industry was working beautifully in 2008,” said Donohue. “CME was holding more collateral from Lehman than needed, broker dealers and FCMs were operating efficiently and people were still trading.”

Lukken added that people even turned to the derivatives during the crisis.

“In fact, large amounts of volume came into the futures market because other markets weren’t operating and people needed to manage risk somehow,” he said.

It is surprising to learn that in a room full of derivatives experts 66% of the audience thought easy money and excessive leverage caused the financial crisis while only 7% said over-the-counter and exotic derivatives were to blame.

The audience agreed with the panelists when it came to centrally cleared contracts as 80% thought the clearing of swaps made the financial system safer.

“The OTC markets had grown too large so bringing that to the centrally cleared market structure was something Dodd Frank got right,” said Donohue.

Volatility and Growth in the Markets

Ed Pla, Global Co-Head of Execution & Clearing at UBS moderated a panel looking at trading volumes and growth in the Exchange space. Panelists included Thomas Book from Eurex, Adena Friedman from Nasdaq, Julie Holzrichter from CME Group, Loh Boon Chye from the Singapore Exchange, Jeff Sprecher from ICE and Edward Tilly from Cboe Global Markets.

Exchange leaders agreed that their groups had managed the recent surge in volatility well and that the current market environment provided a good trading experience.

The audience was also optimistic on this front. Knowing the VIX has been trading at 19, the attendees were asked where they believe it will be in 6 months. 68% of the audience thought the VIX would climb higher while only 8% thought it would fall. About a quarter of the attendees thought the VIX would stay the same.

The audience also provided insight into where the derivatives industry will see the most growth. 42% of the audience thought it would be in Fixed Income, 10% in Equities, 23% in Commodities and about 20% of the audience saw growth in other areas.

Bitcoin and Cryptocurrencies

Speaking of other areas of growth, discussions at FIA Boca were not complete without the mention of bitcoin and cryptocurrencies. On a panel moderated by Richard Gorelick of DRW Holdings, cryptocurrency experts took a deep-dive into this new asset class. Panelists included Paul Bauerschmidt from Coinbase Exchange, J. Robert “Bo” Collins Jr from Renovatio PR, John Deters from Cboe Global Markets, Fred Grede from Bcause, Michael Kraines from Trading Technologies and Tim McCourt from CME Group.

Gorelick kicked the conversation off by asking why the audience should care about bitcoin.

“Because real money is at stake,” said Deters.

CME Group’s McCourt added, “CME launched products because customers care and have a need for risk management and price discovery. We have to meet the demand of the market.”

When asked, 40% of the audience owned cryptocurrencies and 60% said they did not. Everyone in the audience had heard of bitcoin.

While the panelists believe that everyone should pay attention to cryptocurrencies, Grede believes it is the technology behind it that is the real future.

“It’s not the coins but distributed ledger technology that is the future,” said Grede. “Pay attention to blockchain technology and how it has the potential to change all aspects of the financial system.”

Conclusion

Its been a decade since the 2008 financial crisis, it was interesting to reflect back and see how we managed. Looking forward, the FIA Boca attendees are optimistic about the future. With the recent up tick in volatility, there is optimism of new growth. Also, it is evident that every aspect of the industry is anxiously watching the developing new asset class of cryptocurrencies. The FIA put together an engaging conference and only time will tell where growth really comes from and how we fare in the next ten years.