Four Perspectives on Technology, Liquidity, Regulation and the Global Economy
In this issue, MarketVoice takes a look ahead at the "mega trends" affecting our industry. We asked four thought leaders—two from the regulatory world and two from the markets—to talk about the trends and issues that they see as the most important for our industry as we start the new year.
We start with Christopher Giancarlo, the former industry executive who joined the Commodity Futures Trading Commission in 2014. In an interview with MarketVoice, he outlines six mega-trends that market regulators such as the CFTC should be thinking about, including a steep reduction in liquidity, the disruptive impact of technology, consolidation among clearing firms, and above all, the urgent need to strengthen cyber security protections. Giancarlo concludes that regulators need to move beyond the task of implementing post-crisis reforms to preparing proactively for the challenges ahead.
We continue with a contribution from Greg Medcraft, the head of Australia's market regulator and the chairman of the International Organization of Securities Commissions. Medcraft singles out blockchain as a mega trend that we all need to be thinking about. This new technology could have tremendous benefits for markets and investors all of the world, but he cautions that its success depends on investors being able to have trust and confidence in the technology and the services it supports.
Our next thought leader is Tim Wong, executive chairman of Man AHL, a hedge fund based in London that specializes in quantitative investment strategies. In an interview with MarketVoice, Wong discusses the impact of post-crisis reforms on the swap markets and comments on the growing role of non-banks as market makers. He also shares his insights on the evolution of China's markets and the application of artificial intelligence to investment processes.
We conclude with a contribution from David MacLennan, the chief executive of Cargill. MacLennan discusses a long-term challenge facing the entire world economy—how to increase agricultural production to feed another two billion people in the coming decades, and at the same time, adjust to changes in diet as millions of people move up the income scale into the middle class. MacLennan offers three recommendations for enabling farmers to meet this challenge, and encourages the derivatives industry to adjust and adapt to meet new demands for risk management.
Pivoting to the Future
Six Mega-Trends That Will Change our Industry and Challenge Our Regulators
An interview with Christopher Giancarlo
J. Christopher Giancarlo
Commissioner
Commodity Futures Trading Commission
In December, Christopher Giancarlo, one of three members of the Commodity Futures Trading Commission, gave a lecture at Harvard University on six trends that are transforming financial markets. Giancarlo, who spent much of his career working at an inter-dealer broker, warned that regulators are overly focused on “backward-looking” efforts to implement the lessons learned from the financial crisis of 2008-2009. As a result, not enough attention is being paid to the trends affecting markets today and in the years to come, and the impact those trends might have on the safety and soundness of our markets. Following his lecture, we sat down with Commissioner Giancarlo and asked him to discuss some of these trends in more detail, and explain why they should matter to the CFTC and other regulators.
MV: You recently gave a lecture at Harvard Law School on the mega-trends affecting our industry, and challenged regulators to think about how these trends will affect us in the years ahead rather than focusing solely on implementing the lessons learned from the last crisis. What prompted you to talk about this now? Was there sort of an 'aha' moment for you in realizing that our regulatory focus is too much on the past instead of the future?
GIANCARLO: When I arrived here at the CFTC about a year and a half ago, I found that we were almost in a parallel universe. There's the Washington universe, where a lot of the agenda is based upon completing mandates set up by Dodd-Frank, and then there’s the universe of what is actually going on in the marketplace. It has to be said, there is validity in completing these mandates, but how much of that actually addresses what’s really going on today in the marketplace? It’s a mismatch.
So what I wanted to do in that Harvard lecture was to stop for a second and reflect on the challenges that are truly facing markets today, and take stock of the extent to which Dodd-Frank actually addresses them. I identified six mega-trends challenging the world’s financial markets in the early 21st century: cyber threats, rapid technological transformation, central bank over-intervention, liquidity risk, market concentration and de-globalization.
MV: Which one of these challenges would you rank as the highest priority for regulators?
GIANCARLO: The biggest issue right now—and I know this from being in the markets and now here at the CFTC for 18 months—is cyber. Cyber has become a relentless threat. Our markets are now constantly under attack. It is absolutely priority number one. Yet even though this is our biggest priority, there's absolutely nothing in Dodd-Frank about it.
The next mega-trend is the way in which technology is rapidly transforming the marketplace and the human impact of that. Look at the way trading floors have become television studios because there’s no longer any real trading going on there anymore. Think about the back office. Technology is going to have a similarly radical impact on that type of work, which is 40% of the employment of financial services. Technology will also have a radical impact in automated trading and in what I call financial cartography, the ability to map networks. Once again, Dodd-Frank has no answers for this. We can’t be blind to it, and I don’t think we are. The CFTC just put out a rule proposal on automated trading for notice and comment. But we’re not doing that as a mandate of Dodd-Frank. We’re having to respond to the technological transformation of financial markets, in a sense, in our spare time, after we are done addressing all the mandates of Dodd-Frank.
MV: Before we move on to the next trend, I want to drill down on this for a moment. How do you envision the CFTC tackling technology issues like cyber? Is it a question of needing the right resources or bringing in the right people, or do we need to change the regulatory model?
GIANCARLO: Here’s an interesting fact. After the World Trade Center buildings collapsed, there was an analysis done about the human survival rates based upon floors that people were in. There was absolutely no correlation between the height of the floor and the survivability. Some firms that were in the lowest floors had the lowest survivability rates, and some firms at higher floors had higher survivability rates. What determined survivability were the crisis response policies adopted by individual firms. Firms that had good policies and followed those policies got their people out. And firms that didn’t were the ones that had some of the worst losses.
To me, that should inform our approach to cyber and other types of technology risk. I call it a bottom-up approach. Our job, as a regulator, is to encourage the firms we regulate to be well-informed as to the latest cyber threat profiles and adopt and adhere to the best practices and procedures for coping with those threats, so that when a crisis hits they are well-equipped to survive. Government command and control will never work. If the CFTC imposes overly prescriptive policies against cyber threats, they will be obsolete by the time we publish them in the Federal Register.
MV: One of the mega-trends that you talked about in your Harvard lecture is that there has been deterioration in the liquidity characteristics of the financial markets. How much of a factor is regulation in this trend?
GIANCARLO: Regulation isn't the only factor, but it's an important one. The problem is that we have had an ad hoc rollout of federal and international regulations that have never been bench tested for their impact on market trading liquidity. Each regulator has a good argument for what they are rolling out, but nobody steps back and asks, “Well, what is the aggregate impact of all these regulations on market vibrancy and market health?” Although Dodd-Frank specifically tasked the FSOC with coordination responsibilities, the FSOC has been an unmitigated disaster at coordinating the rollout and analyzing the aggregate impact of all these regulations, especially with respect to market liquidity.
MV: The Europeans are doing an EMIR review, where three years after it passed they're going back to look at the rules and make adjustments. Is there an appetite here, either at the regulatory level or the Congressional level, to review these rules like they’re doing in Europe?
GIANCARLO: I think there are budding signs of an appetite to take a look at some of the Dodd-Frank rules and their implementation. I cite our recent review of the CFTC’s de minimis level for swap dealer registration as a potential sign that there could be some admission that not every implementation of Dodd-Frank was chiseled into granite and handed down from on high. I also would cite Dodd-Frank’s indemnification provisions for data sharing. It’s well-acknowledged across the political spectrum, from left to right, that Dodd-Frank got the indemnification provisions wrong. Yet Congress was not able to make that fix to Dodd-Frank until now. I applaud the President for signing the transportation bill that repealed these Dodd-Frank provisions and I applaud Congress for including them in the bill. That should be a model of what we can do with quite a few other parts [of Dodd-Frank] that need to be fixed. And it can be a model for what we need to do at the CFTC for rules we’ve adopted that are clearly not working.
MV: Market concentration is another one of the mega-trends that you see affecting our industry. Tell us how you’re approaching that megatrend and where your concerns are.
GIANCARLO: First of all, let’s qualify it a little bit. Market concentration is evidenced in the reduction in the number and greater concentration of FCMs. We’ve seen similar reduction and concentration in community banks across America. We're seeing the concentration of custodial services. We’re also hearing that banks are reducing a whole range of services to market participants, including prime brokerage and settlement services. So what we’re seeing is a reduction of what I call the biodiversity of service provision in the marketplace. I think market concentration is an issue of great concern and, again, Dodd-Frank provides no answers, but may very well be part of the problem.
To return to the area of FCMs, I’ve been speaking about this since I joined the Commission, but I don’t feel that we’ve really taken it to heart. I’ve heard it justified on the basis that, well, if you look over time, there’s always been a concentration in FCM services, and what we’re seeing right now is worth studying but it isn't really a crisis yet.
My response is that if we want to maintain the largest and deepest markets in the world, we need service provision at every level. We don’t want FCM services primarily run out of New York by major money center banks. We want a small agricultural business in Kansas to be able to go to Topeka to speak to an FCM. We want manufacturers in the Rust Belt to be able to speak to an FCM that is near them and understands local market conditions. It’s not healthy for our economy to concentrate all of these critical services in a few large institutions in a money center like New York.
MV: Let's talk about market fragmentation, another one of the mega-trends that you see as a critical issue for regulators.
GIANCARLO: That goes back to one of the very first matters that I undertook here at the CFTC, and that is our swaps trading rules. We decided to superimpose the futures trading framework on swaps trading. The results are in, and the superimposed framework doesn’t work. No other major overseas jurisdiction has adopted the CFTC's approach to swaps trading. It is fragmenting global markets. We’ve seen the interest rate swaps market divide into a U.S. person market and a non-U.S. person market. The harm in that is that you create disparate and shallower liquidity trading pools. It seems to me that this is not enhancing systemic safety. It is actually increasing systemic risk.
MV: You have laid out some daunting challenges for our regulators and our industry. Are you optimistic that we have the ability and the political will to meet those challenges?
GIANCARLO: I’m very optimistic. So, Winston Churchill said, and I don’t have the exact quote, but it’s one of my favorites. "Americans always come to the right outcome, just after trying every alternative." I think that’s what we’ll do here. I think we’re trying alternatives that aren’t working. Eventually, we’ll get to the right ones.
Blockchain
How We Can Harness the Benefits of this New Technology While Mitigating the Risks*
By Greg Medcraft
Greg Medcraft
Chairman
Australian Securities and Investments Commission
As the head of the Australian Securities and Investments Commission, Greg Medcraft is responsible for ensuring that Australia’s financial markets are fair, orderly and transparent. He also serves as the chairman of the International Organization of Securities Commissions, the group that brings together market regulators from more than 100 countries.
These two roles give him a unique insight into one of the most promising innovations in financial markets--the potential use of distributed ledger technology to revolutionize how transactions are processed and information is stored. Medcraft urges all of us to recognize the potential benefits in terms of greater efficiency and lower costs for market users, but he also cautions that its success depends on building trust in the technology and the services it supports.
The international financial community is becoming increasingly fascinated with blockchain, an important technology that has the potential to fundamentally change the world's capital markets.
The most well-known application of blockchain is the Bitcoin payment system. Blockchain is the underlying technology that allows bitcoin to be traded without a centralized ledger.
Blockchain is an electronic ledger of digital transactions that are 'distributed,' with each transaction being validated through a mathematically complex consensus process before it is written to the ledger. Each transaction or record is evidenced by a unique data set or 'block' that attaches to the continuously growing blockchain. The most disruptive aspect of the technology is that it does not require an intermediary overseeing it or deciding what goes into it. The continual replication and decentralised nature of the ledger makes it resilient and secure.
I am a 30-year veteran of global capital markets and have been a regulator at a national and global level for several years. My view is that blockchain will have profound implications for our markets and for how we regulate. There are four reasons why:
First—efficiency and speed. Blockchain can automate the settlement process for transactions in the markets we regulate, reducing settlement times that would otherwise take days. Faster settlement times mean reduced collateral and reduction in costs.
Second—disintermediation. With blockchain, we will see a dispensation of intermediaries, which will automate trust. In traditional markets, buyers and sellers cannot automatically trust each other, so they use intermediaries. With blockchain, the nature of the decentralised ledger has the potential to create this trust, thus eliminating the need for an intermediary.
Third—transaction costs. Blockchain has the potential to dispense with regulatory registration systems, which would mean falling transaction costs.
Fourth—market access. Blockchain is global and that means world markets have the potential to become even more accessible to investors and issuers through the use of blockchain. That makes it easier for these people to issue or invest in securities.
Of course, much depends on the security, integrity and capacity of blockchain technology and its processes. The industry is investing significant effort in development of the technology. Its success, however, will also depend on investors being able to have trust and confidence in the technology and the services provided. The potential for transformation in this area is nonetheless enormous.
For regulators, one of the interesting aspects of blockchain is that it will be able to provide a consolidated audit trail, with detailed histories of transactions that could be analysed for compliance monitoring.
Right now, we don't know exactly how blockchain or other disruptive technologies will evolve. But I do know this technology is coming our way fast and it will have profound implications for our markets and for how we regulate. We are already seeing firms undertaking significant research and development in this area.
But a note of caution—these opportunities can challenge investor trust and confidence and the integrity of markets. I think that all of us—regulators, industry and technology developers—need to be thinking about how investors and markets can have trust and confidence in new systems built with this technology. This includes considering issues like cybersecurity, recourse mechanisms, block capacity and computing power.
This is an issue that cannot be managed by individual countries, but must be dealt with at the multilateral level. To this end, IOSCO, the international group of world regulators of which I am chairman, is working to identify risks to business models from digital disruption like the blockchain. On the issue of cybersecurity, IOSCO is, for instance, developing general guidance to strengthen cyber-resilience across securities markets. It is also working on international policy to drive innovation without undermining confidence in our markets.
Digital disruption, like blockchain, presents exciting possibilities for capital markets. But as a regulator, it is my job to be skeptical and ensure we harness the benefits while also mitigating the risks. We want to work to harness the opportunities and the economic benefits, not stand in the way of innovation and development. But at the same time, we need to mitigate the risks disruptive technologies may pose.
In other words, we need to help innovation while preserving both market integrity and the trust and confidence of investors. That is what the public expects.
* This article is based on a speech that Greg Medcraft delivered at the Australian campus of Carnegie Mellon University on September 16, 2015 as part of its Distinguished Speaker series.
Searching for Liquidity
A Money Manager's Point of View on the Consequences of Global Financial Reform
An interview with Tim Wong
Tim Wong
Executive Chairman
Man AHL (Man Group)
Tim Wong is the executive chairman of Man AHL, the quantitative investment arm of Man Group, one of the world's largest hedge funds. Man AHL had $17.9 billion in assets under management as of September 2015 and trades in more than 400 markets worldwide. Although Man AHL is best known for pursuing trend-following strategies in the futures markets, it is also a heavy user of swaps and other over-the-counter instruments. In this interview, Wong shares his views on the impact of the post-crisis reforms. The good news, he says, is that the push for more central clearing has been successful, with market participants adapting smoothly to the new requirements. The bad news is that banks have become less willing and to take risk. Liquidity is shrinking, making it more difficult for other market participants to execute large trades. Wong predicts that non-banks will pick up some of the slack, but questions whether current regulations and market practices will need to be adjusted. Wong also discussed several other topics during the interview, including the evolution of China's markets and the use of artificial intelligence in the investment process.
MV: As you look across the landscape of the financial markets, what trends do you see as the most important for asset managers like Man AHL?
WONG: One trend that is very important to us is the adoption of clearing for OTC derivatives. A few years ago, when the mandatory clearing rules started to come into effect, I was deeply worried about the potential impact. I thought people were not prepared for clearing and there was uncertainty about the details of the clearing services, and I was worried that we would see a big disruption of liquidity. As it turned out, there wasn't any big disruption. People found ways to adapt, and more information came through about the operational procedures and risk management and collateral protections and all the other really technical but important details of the clearing process.
So that is the good news. On the other hand, we are definitely seeing the fragmentation of liquidity. This is not just because of the differences between U.S. and European regulations. Banks are pulling out of many markets, particularly in fixed income. They don't want to warehouse risk for their customers and they are not willing to make large trades as they did in the past.
I will give you an example. Two years ago in the European swap markets, you could trade a swap with a value of $200,000 DV01 in one clip and pay 0.4 basis points. Now you can only trade $100,000 DV01 and pay 0.5 basis points. AHL is less affected by this because we tend to trade in smaller sizes, $10,000 to $20,000 DV01. But I am sure that there are people who used to do one big trade that now may have to make three or four or five trades to get the same exposure. Today it is harder to find counterparties willing to trade in the same sizes as before, and the market depth seems quite shallow. If you try to make a big trade, there could be a risk of causing a disruption in the market. That's a big worry in my opinion.
What I am wondering is who will step up and take the place of the banks. In futures and equities markets, there are a large number of high-frequency trading firms that provide liquidity and require very little capital. One can imagine these firms moving into more complex products such as swaps or exotic options. Yes, the ticket size will be smaller, but they won't have to be a bank in order to provide liquidity. But the question is how these traders will respond when something bad happens. Will they still be willing to trade when volatility spikes to a higher level?
The other thing that concerns me is the potential impact on innovation. Liquidity for products like swaptions has come down a lot, and the more exotic types of derivatives may not be viable without the liquidity provided by banks. In my opinion, you could say that we are winding the clock back in terms of financial innovation. For the last 20 years we have been on a one-way street in terms of innovation, and it seems like that is going to change.
MV: One of the newest trends in this industry is the use of machine learning to improve the way we use data. Man AHL has been quite open about investing in machine learning. In fact you have a partnership with Oxford University to support machine learning. Why is this technology so important to Man AHL?
WONG: Yes, we have invested quite a lot in machine learning. We support a research center in partnership with Oxford University and we are using machine learning to build trading models and improve our understanding of data.
Machine learning actually has been around for years. In fact, when I was studying at Oxford in the early 1990s, my final-year project was in a robotics group and they were using machine learning to spot human faces in a picture. At that time the technology was very crude. Now we are seeing an explosion in the use of machine learning, and I think there are basically two reasons. First, machines are much more powerful, and second, we now have access to extremely large datasets. It is very hard for humans to make sense of big data. You need machines to do that.
An area where I think machine learning could be very valuable would be in market surveillance. Regulators could use this technology to analyze market data and recognize patterns. If the swap market for instance evolves towards a different model, where instead of a handful of banks you have thousands of other players, then being able to use this technology to automatically spot issues would be very important.
MV: Before the financial crisis, there was an allure to working in finance and people with quantitative skills wanted to work at investment banks and hedge funds. Now it seems like the sexy careers are at technology companies like Apple and Google. What does the financial sector need to do to attract people with cutting-edge skills in things like big data and machine learning?
WONG: Ten or 15 years ago we were competing with investment banks and other financial institutions for talent. But in the last couple of years the banks have been shrinking, and we have found that we are competing with the likes of Google and Uber. So what we are doing is rather than saying, come work for a hedge fund, we talk about the opportunity to apply state-of-the-art technology and research on quite an interesting data set. That's the attraction. In fact, we have had people who left us for one of these high-tech firms and came back. Hopefully that's a sign that we are doing something that is cutting-edge and interesting for younger people.
MV: Let's turn to a very different part of the financial landscape. You have been watching developments in China's futures markets very closely. What are your expectations for this year and beyond?
WONG: Well, as you know, the Chinese markets experienced a considerable amount of turmoil last year. Look, as an example, at the restrictions on high-frequency trading that were announced. The authorities acknowledged that HFT has a valuable role in providing liquidity in markets outside China. However, there was a view that markets inside China were not ready for HFT, due to the structure of the financial markets and the nature of the investor community.
I think that over the course of the next year we might see a reasonably slow opening of the futures markets to foreign firms. I also expect we may continue to see the launch of new products in the onshore market, but the overall pace of innovation could be slower.
MV: The Chinese futures market today is characterized by very high turnover and very low open interest compared to exchanges in Europe and North America. Do you expect to see that change over time as institutional investors and corporate hedgers become more active in these products?
WONG: I have no doubt that China's futures markets will have more institutional participation at some stage but it may be a long road. My views on this come from my experience with South Korea, which, in my opinion, appears to share some characteristics with the Chinese market. Trading volume is a lot bigger than open interest, and the retail participation seems very high because there are not many other channels for opportunities.
I see the Chinese market evolving in two stages. The first stage could be making the market more open to foreign players, which could lead to views on risk and return evolving and a more efficient market. In the longer term, we could see more institutional players develop in China, but I don't know how long that could take. South Korea has been a fairly open market for many years, but it still has, in my opinion, a disproportionate amount of retail trading and relatively low levels of open interest. So it might take as long as 10 years before these markets may develop a structure more similar to what we see in Western markets.
Two Billion People to Feed
Why Agricultural Production Will Have to Transform in the Coming Decades, and What That Means for the Derivatives Industry
By David MacLennan
David MacLennan
Chairman and CEO
Cargill
David MacLennan is the chairman, president and chief executive officer of Cargill, a global leader in food and agriculture with 155,000 employees in 68 countries. In this article, MacLennan discusses several "mega-trends" that will require not just a massive increase in agricultural production but also profound changes in how and where food is produced. He is optimistic that farmers will be able to meet this challenge, but success depends on respect for the principle of comparative advantage and the signaling power of price. The implications for the derivatives industry is that our markets can help by adjusting existing contracts and creating new contracts in response to changes in how crops are produced, where they are produced and consumed, and how they are transported around the world.
Few trends are as important in the world I operate in than the need to produce more food and to do so sustainably.
It has become commonplace for people to say, “We need to feed 7-plus billion today and 9-plus billion by 2050.” But this statement oversimplifies the picture and fails to convey the depth of the challenge we face.
For one, the world’s middle class is growing. One Brookings Institute study projects that by the year 2030, the number of people reaching middle class in the Mideast and Africa will be more than double what it was in 2008, and in Asia the number will increase by more than 6X!
Two, while this is inherently good news, it puts additional strain on our food system. For as people’s incomes rise, research shows they eat differently. They consume more protein, fats and oils. So the issue is not just more food, it’s also about a changing diet.
Three, in the developed world, consumers are demanding to know more about the food they consume. Where did it come from? How was it grown? How was it processed? What ingredients were added? How were animals treated? How were the people who produced it treated? Most of all, was it done in a sustainable way?
With all these issues, the challenge might seem overwhelming, but at Cargill, we’re optimistic.
First, companies are doing a lot to reduce their environmental impact. Cargill itself has vastly reduced waste, emissions and its use of water and energy over the last decade, and we have plans to continue that success.
Second, we are improving our management of supply chains. In some places this requires educating farmers. In others it requires the right incentives. And everywhere there is a commitment to access more sustainable ingredients, because we are incented by our customers to do so.
Third, farmers are adapting and will continue to adapt to change. Whether it’s a farmer in Iowa using satellite technology to determine the efficient use of fertilizer and water on 1,000 acres of corn, or a smallholder in Zambia growing crops to feed her family on just one hectare, growers everywhere are improving the practices they use to grow more food, more sustainably.
And fourth, we are seeing more collaboration. Consider the commitments in Paris to reduce carbon emissions this past December, and the New York Declaration on Forests in September 2014, which pledged to cut deforestation in half by 2020 and end it by 2030. These measures are not merely fostered by government and NGOs, but embraced by companies like Cargill.
In some ways, we have seen this movie before. Back in 1968, Paul Ehrlich’s The Population Bomb warned that as the world’s population passed 3 billion, we would be on the verge of global famine, mass starvation and a collapse of the social order.
Today, we feed more than 7 billion people. Yes, undernourishment remains an issue for more than 10% of those people. But it’s not because the world fails to produce enough calories, it’s because too many live in poverty. The good news here is that food, even in the developing world, is taking up a smaller portion of family spending than it used to, and poverty in much of the world is in decline.
So how do we best enable such resilience in the global food system going forward?
First, honor comparative advantage and enable open trade
The world’s farmers will produce the most food in the most economically and environmentally sound ways when they cultivate the crops best suited to their particular growing conditions and trade the resulting surpluses with others.
Take China. It has enabled the world in aggregate to produce more food through its decision to honor comparative advantage and import soybeans. When China focuses on those areas where it has an advantage—using its land to produce rice and wheat, which get relatively better yields in China, and then imports soybeans—the world food supply is better off.
Efforts to remove tariffs and barriers to trade, like the Trans-Pacific Partnership, further help to support comparative advantage and lower the real price of food for a world of consumers.
Second, embrace the signaling power of price
The foundation of sustainable agriculture is a price adequate to reward farmers for their efforts. As we say at Cargill, “Price is the best fertilizer!”
Prices are potent signals and motivators for farmers to produce more when the market calls for it. We mask such signals with subsidies, tariffs and other market-distorting mechanisms at our own peril.
Third, permit access and adaptability in risk management markets
As prices become more volatile and as there is greater demand for product differentiation, there will be an urgent need for new risk management tools. This is not only about agricultural prices, it is everything that impacts the processing and movement of the commodity, from energy to transportation and foreign currencies.
As the world is reshaped by population growth, income growth, urbanization and climate change, markets, too, must adapt. New contracts will be needed that take into account shifts in product, production and demand. There is a world of opportunity for innovators of new risk management tools who are willing to join us in focusing on factors that infer change. Euro-denominated cocoa futures, biodiesel futures and wind power futures contracts are some recent examples. Many of these new tools may fail, but we should encourage the innovation.
The pace of change will never be slower than it is today. That is particularly true of food markets. It is all the more important to Cargill that we embrace that change.
