Welcome everyone to Boca 2019, the 44th annual gathering of the futures and derivatives industry in south Florida, or as Jeremy Grant, the former FT journalist, termed it, “Best Industry Event—Ever.” Or put another way – Boca means business!
For many of us, Boca represents the real start of the new year when leaders from this industry migrate from Europe, Asia and the Americas to such exotic locations as the Mizner Center, the Palm Court and of course the Monkey Bar especially if you are trying to find Pat Kenny.
For me, Boca represents the annual renewal of optimism for our industry—a must-attend pilgrimage of the best minds globally looking to make tomorrow better than today.
Boca is where news breaks, deals come together, and business gets done—all under Florida sunshine. How can you not be in a good mood?
Today we gather as a community under signs our industry is thriving. According to FIA data, last year’s volumes for exchange-traded derivatives reached an all-time high of 30 billion contracts, up 20 percent over the previous year.
From Asia to the Americas, our industry provides customers and main street businesses the liquid marketplaces they need to hedge their risks and manage their investments.
But we are not here today to take a victory lap for the industry. Quite the opposite.
An important lesson from 10 years ago is we must remain steadfast in our commitment to healthy and safe markets.
There is no “mission accomplished” when it comes to upholding the integrity of our markets or protecting participants from abuse.
We must be the stewards of these markets with an eye to leaving them better off than we found them.
In the twenty-five years of my being involved in this wonderful industry, I have been fortunate to have worked with many of the people who helped shape the modern derivatives markets — names like Nobel Laureate Merton Miller, Doc Sandor, Leo Melamed, Kok Song, Brian Williamson, Susan Phillips, Bob Wilmouth, and the recently deceased John Conheeney—to name a few.
We stand on the shoulders of these giants, and I guarantee that if these founders could convey one message from their collective wisdom, it would be this:
Grow, nurture and protect these markets.
These founders understood the power of markets to change the human condition for the better. And they also understood their responsibility to prevent this power from being abused.
This is why our industry has a long tradition of supporting self-regulation, education and training, high international standards, and best-in-class government oversight.
They knew that smart regulation does not harm the industry; it allows it to thrive. But there are clouds of uncertainty on the horizon.
Today, there is a growing tendency to blame markets for many of society’s problems—from food shortages to income disparities to high commodity prices.
I am concerned that markets are likely to come increasingly under attack in the years ahead. FIA is here to stand up for our markets and the risk management and price discovery that they provide.
The importance of the derivatives markets to our economy cannot be overstated, but it is often difficult to explain to ordinary people.
That is why I was struck by a news article tucked in the back of the business section that exemplified the power of markets to change behavior. I was also struck by how little people paid attention to this story.
The story read that the United States had transformed itself from the world’s largest importer of petroleum to a net exporter of crude oil in less than ten years.
Amazingly, the US is now the world’s largest producer of oil, surpassing Saudi Arabia and Russia last year.
Think about that for a second. We have waged two wars in the Middle East, spent billions of taxpayer dollars, and devoted a half-century of foreign policy to the free flow of petroleum from the Middle East.
And yet this story went largely unnoticed.
Just think back a decade when the world was beholden to OPEC for its energy needs and the price of a barrel of oil had soared to $140 dollars.
At the time, I was the Acting Chairman of the CFTC, and I was hauled before Congress more times than I care to remember to defend the futures markets. Believe me, a root canal would have been more fun.
But I told them something unpopular at the time: that markets were actually working. As they say, you shouldn’t let the facts get in the way of a good story, but I could see from CFTC trader data that the markets were doing their job.
That is large traders were not exerting influence over prices; the global oil industry was operating at full capacity; the Chinese economy was consuming excess supply; and, the market price was reflecting a global shortage.
I literally would go to cocktail parties in Washington and people would ask me about the “Peak Oil” theory.
To be clear, I have great empathy for the many ordinary people living paycheck to paycheck who were suffering from these high prices. Some were making difficult choices on whether to heat their homes or fill up their gas tanks.
I can understand why some members of Congress wanted us to influence prices and take away this pain.
But ponder this: Would the U.S. have become the largest producer of crude oil today if the futures markets a decade ago weren’t able to reflect these prices?
Those high prices spurred innovation in the oil field that we have not seen in generations. Millions of barrels of oil and thousands of cubic feet of natural gas were brought to market because it became economical.
High prices also affected the demand side of the equation by stimulating investment in alternative energy sources and battery technology.
Anyone here drive a Tesla? If you raised your hand, you are part of a phenomenon called the “Tesla Effect.”
Tesla launched its first electric vehicle in 2008, the same year that oil prices hit their peak. Today, Tesla is manufacturing 5,000 electric cars a week and has a market cap larger than Ford.
Virtually every major auto manufacturer is rushing to produce electric vehicles.
In fact, analysts predict that the combustion engine will power less than half of all new cars in a decade.
Again, this is all due to markets sending pricing signals to entrepreneurs and consumers. To illustrate my point, let’s take a poll. Get out your phones and open your FIAConnect app to this section of the program.
What’s the fastest growing job category in America?
According to U.S. government statistics, solar panel installers and wind turbine technicians are the first and second fastest growing jobs in America.
That’s because a massive amount of money is being invested in renewable sources of energy. Remember the old saying in economics? The solution to high prices is high prices.
When markets discover extreme prices of such commodities as oil, or even corn or interest rates, they are sending powerful signals that supply and demand are out of balance.
The solution is not to shoot the messenger—in this case our markets; it’s to allow drillers, farmers and entrepreneurs to put their derricks, seed corn and capital to work to bring markets back into equilibrium.
In my view, markets are a critical part of the solution to today’s challenges—not the focus of our ire.
Blaming markets for high prices is like blaming a thermometer for it being hot outside. That said, it is the job of all of us—regulators and industry alike—to ensure that no one is holding a match under the thermometer.
The enormous power of markets comes with an equal industry responsibility to be their stewards. FIA is here to harness the collective wisdom of our founders and work to grow, nurture and protect our markets for our generation and the next.
Boca remains the premier conference for the cleared derivatives markets because we gather leaders from the entire eco-system of our industry in one location, including many from the international regulatory community.
For many years, the CFTC has organized a day-long meeting of regulators that coincides with our conference. This gathering allows the regulatory community to have a closed-door but open dialogue on important topics facing the public sector.
And it has led to some notable advancements of the global regulatory framework. For example, in 1996, regulators from Europe and Asia joined the CFTC to discuss the oversight gaps exposed by the failure of Barings Bank.
At the end of the meeting, which took place right here at this very conference, the regulators reached agreement on the so-called “Boca Declaration,” committing those authorities to share financial information during market events and failures.
Fast forward to 2019. Earlier today, a similar group of international regulators met under the umbrella of IOSCO to discuss a G20 initiative on market fragmentation.
In fact, today, FIA is releasing a paper on the risk of market fragmentation due to balkanized regulation.
Our recommendations encourage greater harmonization through international standards and the reliance on comparable home country rules.
Nothing illustrates the threat of fragmentation more than the United Kingdom’s decision to leave the European Union.
I am sure you are tracking the news coming out of London today, and I know that many of you in this room have been wrestling with the disruption and uncertainty caused by Brexit.
This is all the more reason why regulators need to come together to ensure continued global access to markets.
We hope the regulators meeting today will lead to a “Boca Declaration 2.0” that will find a way forward on reliance and regulatory cooperation.
Before I conclude, I wanted to share an important new initiative by FIA’s Board of Directors. As we have discussed in past conferences, there is a notable lack of diversity in the futures, options and listed derivatives industry.
We must and can do better.
That’s why I’m proud that FIA’s Board of Directors has formed a diversity committee, chaired by Alicia Crighton of Goldman Sachs, with the mission of “fostering diversity and inclusion and striving to encourage, support and celebrate the diverse voices in the industry at large.” We invite all to participate in this conversation.
We will be addressing this topic throughout our panels and we will seek your feedback through notifications on our conference app, FIA Connect.
I personally welcome you to pull me aside and give me your thoughts on the most meaningful way to advance this topic.
Although we plan to address all aspects of diversity, as we celebrate Women’s History Month, an initial focus will be gender.
According to a recent Mercer study on diversity in financial services, women occupy just 15 percent of executive jobs, and only 26 percent at the senior manager level.
We aim to host more networking and mentoring opportunities focused on promoting women and diversity in our industry. We will continue to increase speaker diversity on our conference programs as well as raise the topic frequently and forcefully.
In fact, diversity will be the main topic addressed by tomorrow’s keynote luncheon speaker, Reshma Saujani, who is the founder of Girls Who Code and the bestselling author of “Brave Not Perfect.”
I want to thank DTCC for sponsoring Reshma and helping us to highlight this important topic.
Now turning to the program, we have another fantastic and thought-provoking conference ahead. We have the honor of welcoming back CFTC Chairman Chris Giancarlo, who will provide a “state of the agency” update on what is likely to be his final Boca address as chairman. Tomorrow’s ICE breakfast will feature US Agriculture Secretary Sonny Perdue, who will provide his thoughts on the state of agriculture in the US and globally. Tomorrow afternoon will feature an interview with Thomas Peterffy, founder, chairman and CEO of Interactive Brokers, who will explain how he has gone from Hungarian immigrant to self-made billionaire. And Thursday our program starts off with economist Benn Steil, who will provide a historical perspective on U.S. economic leadership.
Another highlight of this year’s conference is the ceremony inducting 13 distinguished members of our community to the Futures Hall of Fame. Since 2005, FIA has honored 144 individuals that have had a significant impact on the futures and derivatives industry over their careers. Please join me tomorrow afternoon when we recognize and celebrate their achievements.
Last but not least, I want to take a moment to thank our sponsors and exhibitors, who make this conference possible. Please join me in thanking them.
And now it is my pleasure to welcome FIA board member Alicia Crighton and her panelists to the stage for a discussion on the health of the industry.