Capital

FIA spent a significant portion of 2024 highlighting serious concerns about two separate proposed rules put forward by US bank regulators. These proposals would dramatically increase capital requirements for the derivatives clearing services banks offer to their clients.

Looking at just the six largest US banks that offer clearing, FIA collected data demonstrating the provisions included in those proposals would increase their capital requirements for client clearing by more than 80%.

Given the seriousness of impact, FIA created a board-level working group to help guide our advocacy. Members of this group frequently travelled to Washington, DC, to help make our case. They met with policymakers at various federal agencies and lawmakers in Congress, among others.

To emphasize the broad and adverse impact the proposed rules would have beyond our industry, FIA proactively engaged and provided briefings to other trade and industry associations (agriculture, pension, manufacturing, energy, etc.). This outreach by FIA paid dividends in the form of numerous formal comment letters filed by end-users in opposition to the bank capital proposals.

We also worked closely with the exchange and clearinghouse community, and with the end-user community, to educate about the risk-reducing nature of client clearing and the important role our markets play from a risk management perspective.

After much advocacy, FIA welcomed Federal Reserve Vice Chair for Supervision Michael Barr’s public remarks announcing that US regulators would re-issue drafts of the proposed rules with changes to address the specific concerns FIA raised throughout the year about the punitive capital treatment for client-cleared derivatives activities.

• FIA strongly opposes provisions in Basel III Endgame Proposal
• FIA and SIFMA comment on operational risk elements of Basel III proposal
• FIA files comment letter opposing GSIB Surcharge Proposal

Operations, Technology and Industry Resilience

Despite the significant volatility in our markets due to geopolitical events throughout 2024, markets continued operating normally. That is a testament to the hard work on resilience we have put in for years.

To demonstrate the continued priority of resilience, FIA formed the Industry Resilience Committee (IRC) at the end of 2023. It offers a forum for key stakeholders to discuss cyber incident management and resilience planning, and to recommend best practices for the industry. The IRC brings together a cross-section of subject matter experts from across market participant types, including those in information security, technology and operations.

Throughout 2024, the IRC prioritised incident response, sector engagement and operational resilience. It served as a trusted group for sharing information and coordinating response during an ongoing cyber incident or other type of outage, engaged with sector-wide groups on cyber and operational resilience coordination efforts, and it focused on the three Rs: Response - coping with the immediate impact of a breach; Recovery - rebuilding and restoring systems; and Reconnection - reconnecting to market infrastructures.

The Derivatives Market Institute for Standards (DMIST) published its second standard, on average pricing, in June. Responding to a proposal from the FIA Americas Operations Division, DMIST will have a consultation on position transfer in early 2025. Additionally, DMIST created a planning and strategy group to prioritize DMIST efforts, which led to creating working groups on position transfer, self-match prevention and client tracer ID.

The FIA Operations Americas Division held a workshop in May to consider the practical implications of clearing 24-hours-per-day/7-days-a-week in the current ecosystem. Notably, panellists at Expo suggested hurdles remain before a successful move to 24/7 trading.

The EU’s Digital Operational Resilience Act (DORA) consumed significant focus in 2024 as it takes effect in January 2025, requiring a significant compliance effort by many firms. FIA called for supervisory guidance ahead of the implementation date and provided input on the Level 2 consultations on topics including subcontracting and threat-led penetration testing. Other parts of FIA’s advocacy included meetings with the European Commission and European Securities and Markets Authority (ESMA) on various topics, including seeking clarification on the definition of ‘ICT services’ under DORA and its application to financial services. FIA also led a joint association effort to draft a position paper relevant policymakers on the issue. In the paper, the trade associations urged the European Commission and the European Supervisory Authorities (ESAs) to reinstate guidance confirming that regulated financial services, irrespective of location from which they are provided, should not be treated as Information and Communication Technology (ICT) services under DORA.

Rule changes impacting derivative reporting in the EU and UK came into effect in April and September, respectively. EMIR Refit introduced wholesale changes to the format and content of derivative data reported in compliance with Article 9 of EMIR. It also marked the culmination of a multi-year effort by FIA and members to ensure industry preparedness through the development of best practice documentation and regulatory engagement through FIA’s membership on the Financial Conduct Authority/Bank of England industry engagement group.  In Q4 2024, FIA accepted an invitation to join the ESMA Consultative Working Group for reporting on a 3-year mandate.

• FIA responds to second batch of DORA policy products
• European T+1 Industry Task Force responds to UK report
• High-level roadmap for adoption of T+1 in EU securities markets
• FIA responds to Fed proposal to expand operating hours of Fedwire and NSS
• FIA responds to consultation on critical third parties in the UK financial sector
• FIA Responds to HKEX Proposal on Severe Weather Trading
• FIA voices concerns on joint data standards proposed by financial regulators
• FIA and CME respond to CFTC proposed rulemaking on investments for FCMs and DCOs
• FIA responds to CFTC proposal on FCM operational resilience framework

Clearing and Trading

FIA continued its core advocacy work focused on clearing, trading, margin transparency, CCP recovery and resolution, as well CCP non-default loss issues.

With the SEC’s US Treasury and repo clearing mandate scheduled to take effect in 2025 and 2026, FIA helped members understand the state of play and how the mandate might unfold.

At a sold out forum in New York City, FIA brought together all facets of the industry to discuss the types of clearing models being developed by clearinghouses. The forum also covered the practical implications of treasury clearing and how firms should prepare for these changes. Conversations on the topic continued throughout the year. At Expo in November, panellists urged regulators to clarify rules quickly to meet the current deadlines.

FIA has several committees involved with the SEC’s clearing mandate, including the Executive Committee, the L&C treasury clearing working group, the CCP risk committee and the FIA capital committee.

Margin transparency featured frequently this year, following a round of international consultations. FIA participated in several events in the first half of 2024 to present and discuss the challenges and opportunities that some of the international standard setters put forth with other industry participants, policymakers and regulators. In the second half of the year, FIA targeted engagement on this topic with policymakers and regulators throughout the world, outlining that transparency and preparedness should come first and directly from the CCPs themselves.

On CCP recovery and resolution, FIA and members continued meeting regulators in the US, EU, UK and APAC regions to share opinions on the CCP resolution toolbox approach, especially highlighting the need for clearing participants to have better visibility as to the application and sequencing of the various tools under different resolution scenarios.

CCP non-default loss advocacy efforts also continued. FIA shared that CCP non-default loss should be borne by the CCP when it has full control over these risks.

FIA updated and reissued its Best Practices for Automated Trading Risk Controls and System Safeguards. The latest paper consolidates FIA’s previous work covering best practices in pre-trade risk management, exchange volatility control mechanisms, post-trade analysis and exchange-based conformance testing, among other areas. The tools, developed through the collaboration of market participants and exchanges to manage the risks related to automated trading, have proven highly effective in limiting market disruptions and protecting markets.

In the EU, FIA organised extensive engagement with Euronext Clearing during 2024 to assist industry preparations for the migration of commodity and financial contracts from LCH.SA on to Euronext Clearing, as part of Euronext's integration of the Borsa Italiana Group. Euronext staggered the migrations, with commodity contracts migrating in July and financial contracts in September. In preparation for the migrations, FIA's European operations committee, technology vendor committee and European regional advisory board held extensive discussions with Euronext regarding industry readiness, functionality requirements and the migration dates to help ensure safe and successful migrations. FIA and Euronext Clearing have continued their strong and productive engagement following the migrations as Euronext moves forward with its ambitious plans to clear new derivative products and enhance its clearing functionality.

In the US, FIA continued to press the CFTC to write a rule on conflicts of interest. FIA President and CEO Walt Lukken highlighted the need for a rule in his testimony to the U.S. House Committee on Agriculture, along with several speeches. Allison Lurton, FIA’s general counsel and chief legal officer, also discussed the need for a rule while participating in a CFTC roundtable.

• Derivatives industry continues pressing for greater efficiency in trading
• CFTC’s Behnam discusses US Treasury and repo clearing
• FIA responds to FICC rules implementing the US Treasury clearing mandate
  • Viewpoint – Treasury clearing, portfolio margining and white whales
• FIA participates in CFTC roundtable on new and emerging issues in clearing
• FIA and FIA EPTA support ESMA proposal on circuit breakers
• FIA and ISDA respond to the BoE consultation on CCP recovery and resolution
• FIA responds to ASX proposals on position reporting framework and operating rules
• FIA responds to SEBI consultation on strengthening the index derivatives market
  • EXPLAINER: The meteoric rise in India’s equity derivatives volume
  • Fad or foundation: Options industry executives weigh in on the equity options trading boom in India and the US
• FIA responds to CDCC consultation on skin in the game
• FIA and ISDA respond to Australia FMI regulatory reforms consultation
• FIA responds to B3 Clearing consultation on its recovery plan and early settlement auction
• FIA responds to JSCC consultation on initial margin and clearing fund calculation methods
• FIA responds to FICC access and segregation proposals
• FIA calls on international regulators to continue progress on margin transparency
• FIA urges CFTC to fill gaps in customer protections before approving leveraged direct clearing
• FIA responds to CFTC proposed rulemaking on FCM separate account margining
• FIA responds to OCC proposed margin add-on charge
• FIA responds to FSB consultation on Liquidity Preparedness for Margin and Collateral Calls
• FIA backs international effort to promote "effective practices" for variation margin
• FIA responds to LME Clear consultation on minimum net capital and default fund

Commodities

FIA’s European commodity groups, i.e. the metals committee and the energy committee, met monthly to discuss upcoming regulations, their implementation and day-to-day compliance challenges. FIA arranged roundtables with the FCA and HM Treasury (HMT) in the UK, as well as Directorate-General for Energy in the EU. The metals committee returned from purely virtual meetings since Covid to in-person meetings and the energy committee enjoyed several in-person meetings and networking receptions.

In the UK, FIA worked closely with the FCA and HMT on the Wholesale Markets Review, which will make changes to position limits, position management and OTC position reporting. FIA expects final rules in early 2025, leading up to the implementation stage. FIA also continued working on a replacement of the current UK ancillary activities exemption, where work will continue, with a new test expected by 2027.

In the EU, FIA examined a possible review of prudential requirements for commodity markets and expects this work to continue throughout 2025. FIA closely followed the discussions and reports published on the back of the energy crisis, discussed the Draghi report with members, had meetings with the Directorate‑General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) and have prepared with members for a consultation on MiFID II and the Draghi report in early 2025.

In the US, FIA held its fourth annual Commodities Forum in Houston, Texas. The forum shattered the previous year’s attendance record and showcased the broad expertise of FIA members across energy, agriculture and metals, with business, operations, risk and compliance and legal sectors. The rapid growth and success of the conference is a testament to the work of FIA’s US commodities committee.

The commodities committee also continued to focus on Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) implementation for US firms, refinements to the CFTC’s reporting and position limits regimes, and CFTC and exchange regulatory and enforcement developments.

• FIA responds to EBA-ESMA review of the prudential framework for investment firms
• FIA asks CFTC to sunset large trader reporting for commodity swaps
• FIA responds to FCA consultation on derivatives markets transparency
• FIA responds to FCA commodities consultation CP23/27
• FIA responds to LME consultation on Daily Price Limits
• Don’t blame increases in commodity prices on derivatives markets: IDX panellists
• Viewpoint: Energized by the energy markets
• Data spotlight: Surge in trading of Midland oil futures on CME and ICE

Sustainability

This year, FIA welcomed the focus of regulators and international standard setting bodies on carbon markets. As FIA members have noted, the primary challenges with voluntary carbon markets rests with the underlying voluntary carbon credits. Specifically, concerns surround the lack of consistency in methodologies employed by third-party validators and the quality of the credits. Accordingly, FIA continues to support public and private sector-led initiatives that seek to increase the standardization and integrity of underlying voluntary carbon credits.

• FIA opposes California bill that would disrupt carbon markets
• FIA supports IOSCO’s good practices for voluntary carbon markets
• FIA responds to CFTC guidance on the listing of voluntary carbon credit derivatives

Growth and Innovation

Innovation underpins our markets and significantly contributes to growth in them.

FIA’s advocacy efforts on artificial intelligence (AI) included sharing our view with the CFTC, US Treasury Department and European Commission. Each of these letters strongly encouraged regulators to regulate the activity, not the technology. Late in the year, the industry’s collective advocacy with the CFTC resulted in guidance from staff that reminded CFTC-regulated entities of their legal and regulatory obligations, without introducing new obligations.

At Expo, FIA hosted the 10th cohort of fintech startups at the Innovators Pavilion. This year’s group offered a variety of new approaches to technology, trading, data and analytics. Their solutions can help firms in our industry access new markets, manage risk more efficiently and further automate their trading processes.

FIA also hosted several discussions about tokenization, AI, crytpo and more at our conferences and forums throughout the year.

• FIA joins response to BCBS consultation on bank exposures to cryptoassets
• Tradewell Technologies named FIA's 2024 Innovator of the Year

Community and Events

In addition to advocacy work on behalf of the industry, FIA hosted many conferences and forums across the globe. These events, combined with webinars, facilitate honest and transparent dialogue within the industry on key issues. And they reinforce the shared values that will ensure industry resilience for years to come.

For example, read the seven key takeaways from Boca 2024 and the highlights from the Frankfurt and Stockholm forums for a sampling of what FIA brought to members and non-members alike last year.

And we inducted one of the largest FIA Hall of Fame classes in recent memory. The honourees represent business leaders, policymakers and visionaries who have provided the leadership and support necessary to keep our industry growing.

• Viewpoint: We’re good at doing good
• Pathways to finance for students of color

Products and Services

FIA built upon its thought leadership reputation through several white papers and best practice documents, and we continued providing the industry and stakeholders with real-time, relevant data.

FIA partnered with Acuiti on a mid-year report on the challenges and opportunities facing the European listed derivatives markets. The survey found optimism in the industry about the potential for growth and innovation in Europe while noting other parts of the world may offer better growth prospects. It also surfaced a high level of concern about existing and prospective regulations, as well as the aftereffects of Brexit.

Any meeting to the EU included discussions on the Capital Markets Union/Savings and Investment Union (CMU/SIU) and Mario Draghi’s report on EU competitiveness. FIA shared its view with EU leadership about the role that derivatives play in effective capital markets. Specifically, FIA believes that centrally cleared derivatives serve as a key ingredient to building a strong CMU/SIU.

Additionally, FIA continues to maintain a comprehensive documentation library, which includes the FIA CCP Risk Review, European Documentation Library and US Documentation Library. We regularly update existing documentation, including FIA legal opinions, and add new templates, disclosures or other industry standard documents to reflect the latest regulatory, legal and other developments. This helps ensure FIA’s documentation services remain the go-to, state-of-the-art suite of documents for consumption, primarily by clearing firms. For example, FIA expanded our legal opinions library by publishing a new CRR Article 305 'look-through' legal opinion for LCH SA, as well as by commissioning a netting opinion for UAE’s Abu Dhabi Global Markets (ADGM) and a CCP netting opinion for LCH Ltd.

FIA has continued to work with the Consortium members, counsel and the CCPs on the development of an alternative client clearing model in Europe – the European Agent Trustee Model (EATM). Following a successful presentation of the new model at IDX, FIA published an EATM FAQ page to outline key features of the model. While we progressed in 2024 on the development of both the English and German law models, we look forward to working with all parties involved towards completion of the model in 2025.

And FIA continued to offer best-in-industry training through the Institute for Financial Markets (IFM). The FIA-IFM’s Get Smart eLearning offers training specifically designed for the futures industry by the industry. Courses are a cost-effective means for firms and market participants to avoid costly mistakes, trading suspensions and fines. On-going training, as noted by regulators, promotes high standards of market conduct and integrity, and reduces recidivism, which builds a culture of compliance.

The Get Smart course catalogue offers training on market conduct, exchange fundamentals on major global markets and the associated regulatory requirements, as well as courses mandated by the CFTC and National Futures Association for those trading on US markets. Get Smart courses are ideal for customers, traders, sales, client services and operations staff, and those with supervisory responsibilities.