2019 YEAR IN REVIEW

Often, FIA’s work takes place behind the scenes as we push for policy and regulatory reform. For instance, we have worked for multiple years with regulators worldwide to explain the exposure-reducing nature of margin for client cleared derivatives. This long-term effort and international outreach finally paid off in June 2019, when the Basel Committee on Banking Supervision released a significant revision to the leverage ratio that permitted an offset for cash and non-cash margin received from clients for cleared derivatives. Soon after, U.S. prudential regulators included this change in their final SA-CCR rule.

This victory on initial margin is proof of how FIA delivers for its members in tangible ways. It also is exemplary of the important role this organization plays as we persistently work on complex issues on your behalf.

Modern derivatives markets are a vibrant and integral part of the global financial system, and FIA ensures they stay that way. By advocating “smart regulation” and pragmatic solutions, our organization ensures all market participants have safe access to the risk-management products they need to succeed. Our work also increasingly extends beyond policy and regulation to help our members through new technology, operational initiatives and standardized documentation.

FIA has accomplished a great deal on behalf of our members in the last year. Here are some work areas and specific actions that reflect the value FIA provided to its members in 2019:

Regulatory advocacy

As in past years, FIA continued its efforts to advise and educate global regulators on clearing and trading issues. In 2019, years of international outreach paid off as the Basel Committee on Banking Supervision released a significant revision to the leverage ratio permitting margin offsets. U.S. regulators subsequently included a similar change in their final SA-CCR rule.

However, FIA's regulatory advocacy went far beyond this key issue in 2019. Our policy efforts around the world spanned multiple work areas as Europe continued its review of post-crisis financial reforms, the U.S. appointed new leadership at the CFTC and China continued to explore the opening of its derivatives markets to the rest of the world.

Some of FIA's noteworthy advocacy efforts in 2019 included:

• A joint letter with other trade associations calling for a review of capital rules
• Petitioning Basel regulators to modify the leverage ratio and recognize client collateral to eliminate barriers to clearing
• Recommending changes to the CFTC’s non-US swaps rulemaking proposal
• Responding to ESMA's EMIR 2.2 Level 2 consultation on tiering and comparable compliance
• Responding to ESMA's consultation on commercial terms for providing clearing services under EMIR (FRANDT)
• Extensive advocacy to ensure members' concerns and priorities are understood and considered during the CCP Recovery & Resolution legislation process

Operational improvements and industry resources

In 2019, FIA built on its history of connecting its member firms with practical solutions and tools regarding issues related to clearing and trading. Many of these efforts are individually small but collectively they help improve the day-to-day functioning of the industry’s underlying infrastructure in areas that include exchange technology upgrades, delivery processes, clearing non-standard contracts and facilitating cooperation with exchanges and CCPs on various operational issues including the transfer of open interest. 

FIA also released an important new set of template disclosures for FCMs regarding separate accounts in our online documentation library, as part of an ongoing effort to help members with their compliance needs. Separately, FIA continues to publish additional CCP Risk Reviews that summarize the rules and procedures of CCPs worldwide in practical, comparative terms.

Modern derivatives markets know no borders. However, inconsistencies between regulatory jurisdictions exist that can result in the fragmentation of our shared global marketplace. One of FIA's top priorities in 2019 was to continue its work to ensure all markets remain open and accessible.

Market fragmentation white paper

In March, FIA released a white paper warning of market fragmentation and offering potential solutions. These include international standards being set through a dialogue among peer regulators and regulatory authorities enacting mechanisms for cross-border information-sharing and crisis-management planning.

Testimony and awareness

FIA continues to act as the industry’s voice on the risk of market fragmentation. That includes prominent efforts in Europe, where the acute concerns of Brexit create potential near-term fragmentation issues, but around the rest of the world as well.

In June, FIA President and CEO Walt Lukken testified before a U.S. House of Representatives subcommittee on the importance of "open and fair access to derivatives markets" including the importance of 2016 equivalence agreements reached between the CFTC and European Commission related to clearinghouse supervision. Lukken also made fragmentation a key topic of conversation in a visit to mainland China in the fall to meet with leaders there.

Other noteworthy efforts to fight market fragmentation included:

• A joint effort with other trade organizations to extend temporary equivalence for U.K. CCPs
• Responding to the China Securities Regulatory Commission on QFII and RQFII regulations
• Advising ESMA on EMIR 2.2 tiering and comparable compliance
• Proposing changes to CFTC rule proposals that govern foreign clearinghouses

Advocating for commodities members

In Europe, FIA worked closely with regulators on a review of the MiFID II regime and Market Abuse Regulation (MAR). Regarding MiFID II, our focus was on position limits, such as more flexibility for new and illiquid contracts and the retention of a carve-out from MiFID II for wholesale power and gas. FIA filed responses with the German Ministry of Finance, to ESMA’s call for evidence and ESMA’s consultation on position limits. In our work on MAR, FIA advocated for ESMA to continue to recognize that commodity markets require their own definition of inside information due to the different nature of the markets.

In the U.S., the Commodities Committee focused on CFTC’s intention to police foreign bribery and other corrupt market practices and warned against an improper definition of "insider trading" in derivatives markets. The committee also advocated for changes to SA-CCR including recalibrating the supervisory factors for commodity derivatives, and lowering the MPOR for client cleared derivatives to five days. The U.S. Commodities Committee also issued a response to the CFTC’s proposal on the implementation of uncleared swaps margin rules.

Bringing commodity members together

Members of the European Commodity Derivatives Working Group met twice for whole-day events that discussed challenges the industry is facing. Members also had the opportunity to discuss any issues directly with representatives from the FCA, the AMF and ESMA. Throughout the year, members engaged in monthly meetings in the Metals Committee, Energy Committee and Agricultural Committee to talk about day-to-day compliance issues, regulatory challenges and FIA’s advocacy strategy in the commodity space.

Beyond successful events in Europe in 2019, FIA also gathered together regulators and industry representatives for its inaugural Commodities Symposium in Houston. Sessions at the event covered best practices for CFTC and FERC compliance programs and discussed legal, regulatory and operational issues for commercial hedgers and end-users.

Other noteworthy FIA efforts last year in commodity derivatives markets included:

• Advising the CFTC on improving swaps reporting rules
• A webinar on new obligations for financial and non-financial counterparties
• Responding to EU energy market initiative
• Consulting with IOSCO on commodity storage and delivery infrastructures

Increased outreach in Asia, Europe and the U.S.

In 2019, a new five-year political cycle began in the European Union following the European Parliament elections in May and the appointment of a new European Commission. That means the start of renewed outreach across the continent as FIA seeks to educate a new class of policymakers on the challenges facing the cleared derivatives industry. FIA also appointed Bruce Savage as its Head of Europe, bringing his two decades of experience in the exchange traded and cleared derivatives industry to the organization.

In the U.S., the confirmation of a new chairman of the Commodity Futures Trading Commission meant a change in both staffing and priorities at this key derivatives regulator. As a result, FIA increased its Washington, D.C. outreach efforts. In October, Chairman Heath Tarbert was a featured speaker at FIA Expo and used this platform to unveil his policy priorities for the agency.

In Asia, FIA has been closely monitoring the continued evolution of Chinese derivatives markets. That demands continued conversations with top officials about how to move towards global standards and reduce barriers for international market participants who want to do business in the region. FIA's President and CEO Walt Lukken continued his work on the International Advisory Council of the China Securities Regulation Commission, and in November he attended the group's annual meeting in Beijing.

FIA also hosted events that brought together industry and regulators, including a London cross-border regulatory forum, a one-day symposium in Frankfurt and an outreach event in Brussels that hosted European Commission officials and regulators to discuss key issues.

"Tag 1031" solution and support

In November, CME Group became the first futures exchange to require a tag on order messages that identifies the execution method. This was a major milestone in the industry's efforts to standardize trading and reduce a persistent source of friction in brokerage settlement, and the culmination of almost a decade of work by FIA and FIA Tech. In addition to its development, FIA supported the rollout of "Tag 1031" through simplified guidelines and a webinar to help further adoption of this standardization effort.

Documentation library and data

FIA works closely with member firms to develop industry-standard agreements and other documentation that all market participants can use to support their trading and clearing functions, as well as to ensure regulatory compliance in different jurisdictions. FIA's extensive online Documentation Services platform was further updated in 2019 to include new terms of business documentation, indirect clearing documentation, netting opinions and more. Members also have access to FIA's archive of industry data that includes regularly updated exchange volume, SEF and FCM statistics.

Other noteworthy efforts included:

• 20 FinTech startups joined our annual Innovator's Pavilion at Expo, which included a partnership with venture capital firm Tribeca Early Stage Partners in 2019
• FIA conducted its third annual cybersecurity preparedness exercise, welcoming more than 60 firms for a table-top exercise, and conducted its 15th annual business continuity exercise
• FIA continued to offer an updated Give-Up Agreement Transfer Protocol in 2019 to assist firms with their preparations for potential Brexit-related business migrations
• FIA published a position paper advocating for changes to improve and harmonize reporting across regimes
• FIA sent comments to ESMA and European regulators regarding EMIR position level pairing and matching
• FIA coordinated efforts with industry stakeholders to define an industry standard UTI generation logic to be implemented in 2020
• FIA and its affiliate, the European Principal Traders Association, responded to ESMA’s consultation on the cost of market data and consolidated tape
• FIA published a Master Regulatory Reporting Agreement with other industry associations to simplify reporting across different European Union regulatory regimes

Derivatives markets depend on relationships -- between clearing firms and their members, between counterparties making a trade and between vendors and the organizations they serve. FIA is a central gathering point for the industry to foster harmonization and international cooperation for the benefit of all market participants.

2019 FIA Events

Noteworthy efforts included:

• Establishment of sustainability working groups
• Hosting a dedicated compliance and regulation forum on sustainable finance
• Regular panel discussions at major conferences
• Dedicated coverage on FIA's website and in MarketVoice magazine

FIA Diversity & Inclusion Initiative mission statement:

FIA recognizes the benefits that diversity and inclusion can bring to an organization. FIA is committed to fostering diversity and inclusion and will strive to encourage, support and celebrate the diverse voices both within the organization and the industry at large. Diversity encompasses a range of human differences. All areas of diversity and inclusion deserve recognition in our industry.

In 2019, FIA announced a board-level Diversity Committee, an initiative addressing the importance of diversity and inclusion in our industry. The committee is chaired by FIA Board member Alicia Crighton (Goldman Sachs).

Throughout the year, FIA has sponsored dedicated sessions to discuss diversity and inclusion as part of its conference programming, as well as working to ensure its internal groups, conference panels and other efforts feature an inclusive mix of participants from different backgrounds.

FIA European Principal Traders Association

FIA European Principal Traders Association (FIA EPTA) represents more than 25 principal trading firms in the region on key issues such as automated trading, technology concerns and market fragmentation.

FIA Principal Traders Group

The FIA Principal Traders Group (FIA PTG) is an association of more than 25 firms that trade their own capital on exchanges in futures, options and equities markets worldwide. 

In 2019, the FIA Principal Traders Group (FIA PTG) continued to advocate on behalf of its members on a broad range of market structure issues across multiple asset classes including futures, equities, cleared swaps and corporate bonds. In addition to their market structure advocacy work, other topics addressed included digital assets, supplemental leverage ratio, trade reporting, and CCP default auctions. FIA PTG used comment letters, regulatory advisory committee participation, meetings with regulators and media as well as conference panel participation to promote its positions on these topics.

Detailed descriptions and links to FIA PTG’s work is contained in their mid-year and annual reports found here.

FIA Technology Services

FIA Technology Services, Inc. (FIA Tech), a wholly-owned subsidiary of FIA, provides key services and processes to the industry including managing legal agreements, settling brokerage, meeting compliance requirements and automating reconciliation. In 2019, FIA Tech continued to offer solutions to the market, with a goal of creating operational efficiencies and assisting with the management of complex legal and compliance concerns. Following on the launch of Tag 1031 by CME, FIA Tech continues to work with other exchanges across the globe on implementation thereof.

FIA Japan

Futures Industry Association Japan (FIA Japan) has around 60 members across the region's derivatives industry, and focuses on both financial and commodity markets.

The Institute for Financial Markets

The Institute for Financial Markets (IFM), founded in 1989, is a nonprofit educational foundation that aims to increase public awareness and understanding of the importance of financial and derivatives markets. The Institute engages clients in activities such as workshops, conferences, course dissemination, course development and research.