Welcome everyone to the 14th annual Asia Derivatives Conference.
I’m proud to announce that this year’s conference sets another record for us with over 800 attendees registered. Thank you, David for that kind introduction.
I also want to recognize Bill Herder and his staff here in Singapore for the incredible work they do in putting together this conference every year.
There is a very popular movie currently out that is based here in Singapore depicting the lives of the super wealthy. I cannot relate to this movie. Instead of "Crazy Rich Asians," my life would be better described as "Crazy Nerdy American."
This movie celebrates the ingenuity and wealth creation of an island nation that is built on a unique blend of culture, government and business. Since its independence over five decades ago, Singapore has developed into one of the most prosperous and productive nations in the world.
The IMF ranks Singapore 10th in per capita GDP in the world, nearly five times the global average. What is the secret of this success? There is one I want to highlight, and that is Singapore's position as a global financial center.
Singapore supports the free and open flow of financial services by writing smart laws that encourage innovation without tolerating misconduct. This has resulted in enviable growth and development in Singapore, including:
- More than 200 banks located here, with a combined total of $2 trillion in assets;
- The third largest FX trading center in the world, with more than $500 billion traded per day;
- And close to 800 companies listed on SGX, of which 40% are foreign companies.
This success did not happen overnight. The foundation for this success was laid decades ago with a commitment to free-market capitalism, globalization, political stability and human capital.
I think it’s very telling that in 1984, the Singapore Monetary Exchange, or Simex, the predecessor of today's SGX, partnered with the CME to create one of the very first cross-border trading links in our industry.
Singapore is a small place geographically, but has a large presence around the world.
It punches above its weight. But as an island nation with limited natural resources and a relatively small population, it requires open markets and free trade to thrive.
Singapore is indeed a metaphor for our industry.
Members of our industry are proud and scrappy over-achievers that help to manage the world’s volatility and risk. And our clients must have access to global markets to manage that risk—no matter where in the world those markets are located.
And there are plenty of economic and political risks in the world right now.
- The U.S. midterm elections bring back divided U.S. government; it’s too early to tell whether this means more gridlock or an impetus for cooperation and compromise, but the former looks more likely.
- Continental Europe and the UK are pulling apart economically and politically with the end-state very much unsettled and the leave date fast approaching.
- Asia, meanwhile, faces challenges as the US reconsiders its trade policies with China and elsewhere while China itself contemplates opening its markets to foreign participation and competition.
On Monday, I was in Beijing meeting with CSRC Chairman Liu as part of its International Advisory Council. The Advisory Council contains some thoughtful minds on our financial markets, including Madam Ho Ching of Temasek, Leo Melamed of the CME, former SEC Chair Mary Schapiro and former UK FSA chief and current chair of RBS, Howard Davies.
I am honored to be a part of this illustrious group and lend my expertise as a former regulator and market practitioner to the debate. The CSRC has asked this group to tackle these global uncertainties head on, wanting advice on the impact of trade tensions on global economies and how they should continue their path of opening markets in China.
It is on this last point that as your representative of our markets, I have been very strong and clear. It is imperative that we support open, safe, and well-regulated markets globally.
This is the heart of FIA’s mission and drives everything we do as an organization.
In my meetings with the CSRC, I applauded China for taking steps to open their markets to foreign participation, and I gave suggestions on changes to their laws that would help expedite foreign involvement in their markets going forward. Just to be clear, the opening of the Chinese markets most benefits China [pause] because enhanced liquidity improves competition, keeps costs affordable for Chinese customers, and grows their economy.
Other nations have realized the benefits of open markets and the facts prove this point.
FIA has polled several major exchanges regarding the percentage of their volume that comes from foreign counterparties. The results are revealing and may provide comfort to the CSRC:
- SGX is the most international, as you would expect, with 90 percent of its equity derivatives volume and 73 percent of its FX derivatives volume coming from outside Singapore.
- CME Group, for example, reports sizeable volume coming from outside the U.S., including 43 percent of its metals contract volume and 40 percent of its FX volume.
- Eurex shows a vast majority of its volume comes from outside the EU27 nations, including 81 percent of its bund, bobl and schatz contracts.
This last example highlights the importance of keeping our global markets accessible during times of uncertainty. With the Brexit “leave date” fast approaching, if European exchanges could no longer access external liquidity, many customers would not be able to hedge risk during this time of great political uncertainty.
FIA welcomes the recent statement by the European Commission on contingency plans for the withdrawal of the UK from the European Union.
While we recognize that further clarity is still needed—especially when it comes to reporting and trading venues—we are encouraged by the European Commission’s announcement for temporary access to UK CCPs. This complements the UK’s prior assurances for access to EU clearinghouses and exchanges post-Brexit.
We encourage all parties to work on a deal that is minimally disruptive to the cleared derivatives industry.
And we stand ready to roll up our sleeves and help.
Our markets would struggle to thrive without the ability to access customers across borders—whether it’s China, Europe or the US. And this can only occur with a pragmatic approach to regulating these cross-border transactions. The good news is a commonsense model does exist.
FIA strongly supports the regulatory recognition model that has been the foundation of the futures industry for years. This approach allows authorities to recognize and defer to other nations laws and regulations when they abide by high global standards and are deemed comparable.
Global regulators have used this approach in our markets dating back thirty years. The CFTC was one of the first regulators to put in place a cross-border recognition approach—starting with foreign brokers in the 1980s and foreign boards of trade in the 1990s.
The EU also adopted this approach post-crisis by allowing home country rules to apply if the rules are deemed equivalent to EU laws and regulations. In Asia, jurisdictions like Japan, Singapore, and Hong Kong and China with their recent “connect” links have adopted recognition approaches to allow cross-border transactions.
Despite this history, some divergence from this pragmatic approach has developed since the financial crisis. The scars of this event have caused certain jurisdictions to impose their authority on third country exchanges, clearinghouses and transactions, beyond their home country’s oversight: Starting with CFTC’s imposition of its Dodd-Frank swaps guidance on third countries and, most recently, the EU’s proposed regulation of third country CCPs.
These developments could lead to conflicting rules and multiple regulators overseeing our markets, which is especially concerning during a crisis.
The good news is that regulators understand the issue and are talking about ways to preserve a recognition approach that also protects the interests of home country regulators.
Such an approach must avoid duplicative oversight without sacrificing important protections for markets and customers.
The stakes are incredibly high. Without common ground, we may find ourselves with fragmented markets and balkanized regulation. That doesn’t benefit anyone, especially customers other end users.
FIA’s mission also aims to support safe markets—whether it’s preparing our members before a crisis occurs, organizing our members during a market event or providing important lessons learned after the crisis has passed.
Most recently, FIA has been working to understand the recent clearing member default at NASDAQ’s Nordic clearinghouse, and to determine what changes to risk management may be needed to prevent similar defaults from occurring in the future.
Today, FIA published an updated white paper on CCP risk that contains several recommendations on improving the risk management of central counterparties. These recommendations cover issues highlighted by the default such as membership criteria, default management, skin-in-the-game, and margin adequacy to name a few.
Importantly, these recommendations aim to improve the risk management of every clearinghouse globally.
Whether it's safeguarding our markets or keeping our markets accessible, FIA’s mission is a constant in an ever-changing world.
Now, turning to our conference, we thank you for attending FIA Asia. We have a great lineup of speakers and topics that explore the challenges and opportunities in this region.
Our conference this year features CFTC Commissioner Brian Quintenz, exchange and clearinghouse leaders as well as many other global and regional experts. We will examine various viewpoints on Asia-Pacific exchanges, next generation of investors, fintech innovation, and Asia’s commodity markets.
Of course, no Asian-Pacific conference is complete without a panel examining what is happening in the Chinese markets. In fact, this year’s “Great Debate” tomorrow morning will focus on the opening of the Chinese markets and whether the Yuan is poised to become a more dominant global reserve currency. Like always, there will be barbs, insults, bribes, dirty tricks and low blows—sounds a bit like Pat Kenny’s year-end review.
This fun, lively and informative battle is always a highlight of the Asia Derivatives Conference.
At each of our conferences, we make a point of giving back to those less fortunate by making charity an integral part of our program. Over the last ten years, FIA Cares and our charitable events have raised millions around the world to help those in need.
Asia has played its part through the Charity Golf Event benefiting Futures for Kids which will be held this Friday. Please see Bill Herder for details. We hope you will join us! But before we kick off the program in earnest, I would like to take this opportunity to thank all the sponsors and exhibitors of FIA Asia 2018. Without their support, this conference would not be the success it is today.
And now it is my pleasure to introduce our first panel: “The FCM Perspective,” and to invite FIA Board Chairman and Vice Chairman Jerome Kemp and Nick Rustad to the stage…..