With the elections behind us, I’m longing for less shouting, fewer political text messages and, hopefully, more common sense.
And some honesty, as well. Because if you can’t come to grips with the truth, you can’t come together to solve problems and heal wounds. Growth must begin with a reality check. Our industry deserves that, too.
So, let’s escape politics for a minute and talk football.
This fall has been amazing. My college football team—the Indiana Hoosiers—are undefeated for the first time ever. And my adopted professional football team, the Washington Commanders—are having a surprisingly good season.
These two developments have literally changed my mood for the better.
Now there are many reasons for the success of my two football programs. But I believe the top reasons are the coaches—and their willingness to be truth tellers and be honest with their players. You cannot begin to win until you have laid bare the reality of where you are as an organization. Only then can you start to build up.
For example, the Commanders’ head coach has instituted "Tell the Truth Mondays." During these meetings, he encourages his team to be honest and accountable for what went right – and what went wrong – on Game Day.
He has created a safe space to allow coaches and players to tell the truth and course correct for the betterment of the team. This is creating a culture of growth and winning.
That idea really resonated with me. It got me thinking about our industry and how we might benefit from a frank analysis of how we’re doing.
So, let’s have our own Tell the Truth moment and recognize what we do well and identify where we need to improve.
First off, what are we doing right?
Tell the Truth Fact number 1: The global growth story of our industry is real.
FIA data shows global trading volume of futures and options continues to increase. We expect to notch another record year in 2024, marking seven straight years of record activity.
And on this theme of honesty, we should point out that much of that growth comes from retail trading and, specifically, India. We are also seeing retail growth in US equity options and futures, crypto products and prediction markets. The retail story is worth tracking.
But retail isn't the whole growth story. Here in the US, we see record levels of trading activity in Treasury futures and options and strong growth in futures and options across the global energy complex. Recent inflation and economic volatility in the markets, geo-political conflicts and the long arc of the energy transition fuel this as market participants look to hedge the associated risks.
This growth story is worth highlighting.
Tell the Truth Fact number 2: Competition is heating up and more is needed.
When I started in this industry nearly 30 years ago, there were more than 100 FCMs clearing futures for customers. Today, there are 50. Back then there were 20 exchanges registered with the CFTC and now there are 16. And among those 16, only four that have meaningful volume.
Our markets would benefit from more competition. Competition sharpens our animal spirits. It encourages innovation and lower costs. And consumers benefit from choice.
That said, we are starting to see some signs that competition is heating up.
In interest rate futures, new exchanges have embarked on a campaign to compete in the US interest rate futures market. While trading volumes have remained quite small, it has spurred the animal spirits in the fixed income marketplace for the first time in over a decade.
The SEC’s treasury and repo clearing mandate, which currently goes into effect in 2025 and 2026 has further driven competition in the treasury markets. We now have three clearinghouses that will compete in treasury clearing as these markets move towards a “futures-style” client clearing model.
Let’s not forget event markets. While listening to my Commanders football game on the radio before the election, I heard no less than three Robinhood commercials promoting their event contracts on the Presidential election.
Others must have been listening, too. Robinhood surpassed 200 million contracts traded in the week leading up to the election. That’s more than the number of people who voted in the actual election. And that these markets were more accurate than the polls.
I’m still digesting what these markets mean for the future regulatory environment, but the wisdom of crowds appears to have succeeded.
We welcome this trend of increasing competition.
However, too much of a good thing can sometimes lead to unintended consequences. And that’s why the laws that govern our markets require fair competition and responsible innovation. Unfettered competition and innovation could jeopardize the integrity of the markets and put customers at risk.
Tell the Truth fact number 3: The laws and regulations of our markets must keep pace with our evolving market structure.
Traditionally, the regulation of the futures and options markets has been by functional activity. Public exchanges that bring together buyers and sellers are regulated to protect the fairness of the marketplace.
Increasingly, however, we see exchanges embedding all of these functions within one legal structure.
FIA has strong concerns that collapsing the existing multi-tiered ecosystem—with its inherent and independent checks and balances and customer protections—could undo the solid foundation of the listed derivatives markets and, ultimately, put customers at risk.
We strongly encourage the CFTC and the incoming Administration to propose strong rules that govern the inherent conflicts from these arrangements.
So, as we approach Thanksgiving, I’m reminded that our industry is a big, messy and sometimes loud family. Maybe like many of yours. We work hard and we play hard. We have a lot of diverse views, and we don’t have all the answers.
At the same time, we’re trying to bring the right people together to have an honest, frank discussion to reach the best conclusions for our industry.
Together, and only together, will we continue our industry’s impressive track record of resiliency and innovation.
