Walt Lukken, President and CEO of FIA, delivered remarks on global trends in derivatives markets on May 28 during the Shanghai Derivatives Market Forum in Shanghai, China.
Lukken praised the development of the derivatives market in China, saying, “Shanghai is well on its way to becoming a leading center for price discovery and risk management, not only in China but in the whole world.”
Lukken discussed the opportunities and challenges inherent in the transition from over-the-counter trading to exchanges and clearinghouses. “The changes taking place around the world to transform the OTC market are profound and will make exchanges and clearinghouses even more important than they already are,” Lukken said. “There is great value in the exchange and clearinghouse model for price discovery and risk management.”
Lukken urged international regulators to stay alert to the risk that comes from centralizing activity in clearinghouses. “The migration of the swaps market to the exchange/clearing model means that the amount of risk moving into the derivatives clearinghouses will increase dramatically,” he warned. In this context, he emphasized the importance of implementing international standards for financial market infrastructures and highlighted the critical role of the clearinghouse member firms.
He also stressed the importance of international regulatory cooperation to maintain healthy markets and encourage regulators to move towards mutual recognition or substituted compliance as a mechanism for cross-border regulation and oversight. “I am hopeful that regulators will find value in finding ways to cooperate that allows global markets to exist while effectively protecting the marketplace and its participants.
The Shanghai Derivatives Market Forum, now in its 11th year, brings together government officials and industry leaders to discuss the development of the futures industry in China. This year’s SDMF was co-hosted by the Shanghai Futures Exchange and the China Financial Futures Exchange. In addition to FIA’s Walt Lukken, the speakers included Jiang Yang, vice chairman of the China Securities Regulatory Commission, Tu Guangshao, executive vice mayor of Shanghai, Yin Zhongqing, deputy director of the financial and economic committee of the National
People’s Congress, and Chen Youan, chairman of Galaxy Futures.