MARKET NOTE
Listed Derivatives
FIA Expo 2017 Recap:
The Futures Industry on the Cusp of Change
Introduction
My annual fall trip to FIA Expo in Chicago got off to a great
start, with American Airlines as my chariot from Newark, NJ,
to the Windy City. The smooth ride in a new airplane, with
plugs and gadgets galore, proved more enjoyable than my
daily commute into downtown Manhattan. Expo, as the
cool kids call it, has been much more pleasant since it was
moved up a few weeks on the calendar and has recently
been aligned with the post-season run of the beloved Cubs.
The venue at the Hilton is top-notch, and the surrounding
accommodations are adequate for those looking to save a
few bucks. The coffee shop area acts as the central meeting
place where upstart vendors peddle their wares one-on-one
to the futures industry powerbrokers. For those who seek
some additional privacy, there is a lounge at the far end of
the hotel where a quiet bar and tight booths allow for some
intense negotiations. I venture to guess that the entire
conference at one point or another wanders into the Irish
pub Kitty OSheas either on purpose to meet an old friend
or simply to see what the buzz is about. I recommend the
fish and chips, although I prefer more fish and less chips.
The layout of the conference a bit overwhelming and a
challenge to navigate, but to be fair, I am trying to take in
everything Expo has to offer. With the addition of the
Innovators Pavilion a few years ago to the already massive
spread of multiple exhibit rooms, trade show booths, wires,
monitors, lights, and chatchka giveaways, I find myself
tracing my steps to avoid getting lost as I hurry to the next
panel discussion or meeting which typically is up an
escalator or on the other side of the complex.
Expo is clearly where the futures industry professionals who
manage day-to-day operations meet to share ideas, explore
new technology, grapple with regulation, and set the stage
for the upcoming year. The City Winery acts as the kickoff
reception, where conference-goers get acclimated and
enjoy some wine, hors doeuvres and craft beer. Charity and
giving back is a recurring theme of the FIA, and the Great
Chicago Steak Out on the last night raises a great deal of
money for the Greater Chicago Food Depository.
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Tom Lehrkinder, Senior Analyst
November 2017
Key Points
Education is an important theme for FIA with the roll-
out of futuresfundementals.org. Education was
highlighted in other panel discussions across
exchanges and service providers.
The CFTC is rounding into shape, with new
commissioners who are both eager and competent.
Innovation is well represented, ranging from
compliance and trading to back-office settlement and
new products.
Commodities remain an important facet of the futures
business, with China taking a leadership role in
production, consumption, and managing risk.
The futures industry is embracing the cryptocurrency
world with Cboe being the first exchange to announce
the pending launch of a futures contract. CME Group
quickly followed suit. Let the race begin.
Take the Blue Line to and from OHare Airport it
beats driving every time.
So It Begins
Since I joined TABB Group nearly two years ago, I have
sharpened my social media skills and fancy myself an
accomplished tweeter at events like Expo. My twitter
handle is @TabbLehrkinder, which makes me sound a bit
like an aristocrat which I am not. I try to keep my followers
up to speed with interesting tidbits as well as condensed
content, all under 140 characters.
Walt Lukken, President and CEO of FIA, kicked of the 33rd
Annual FIA Expo conference touting industry education with
the rollout of futuresfundementals.org, which is the FIAs
most recent application. The education theme is consistent
with industry participants who recognize the need to spread
word about the industry to a new generation of potential
clients. I checked out the site and it is certainly user friendly
and quite easy to navigate.

Lukken went on to have his Hollywood awards show
moment as he introduced CFTC Chairman Giancarlo via
video. Chairman Giancarlo sent his sincere regrets and
explained that his absence was caused by a conflict with
another conference in Madrid, which, of course, sounds a
little more exciting than Chicago. The good news is that he
was with the head of the Securities and Exchange
Commission, which clearly illustrates how far the two
agencies have grown regarding collaboration.
I will not say Chairman Giancarlos absence was calculated,
but it certainly did allow for the two newly minted CFTC
commissioners to spread their wings without competing with
their boss. Brian Quintenz (Republican) and Rostin Russ
Behnam (Democrat with a Republican aura) both come
well equipped with extensive trading and business
experience blended with a distinct love of public office. Their
agendas seem to be initially similar, as both are focused on
risk management, with Commissioner Behnam having the
formal mandate of running the Market Risk Advisory
Committee. I would recommend a divide-and-conquer
approach, as there are plenty of other important topics to
address, including automated trading.
Commissioner Quintenz was clear that Reg AT is all but
dead in its current state, but I feel there are many
components that have some value to the industry and
deserve formal adaptation. Unfortunately, the Commission
remains undermanned, with two spots to be filled, which is
slowing down progress. The next two appointments will
round out the Commission, with the vacancies to be filled
with one republican and one democrat. (Note: The CFTC
website is a bit delayed in putting up a picture of Russ
Behnam, but I guess it has only been two months and that
is acceptable in Washington terms.) On a lighter note, we
learned that Jack Nicklauss nickname, The Golden Bear,
did not come from his ageless blonde hair, but instead came
from his high school mascot in Ohio. You never know wat
you will learn at an FIA event.
Purple Tie, Purple Tie
Next up was the Exchange Leaders Panel, made up of the
usual suspects chock full of big titles: Adena Friedman,
President and CEO, Nasdaq; Terry Duffy, Chairman and
CEO, CME Group; Jeff Sprecher, Chairman and CEO,
Intercontinental Exchange; Ed Tilly, CEO, Cboe, and a
newcomer from the clearinghouse side, Thomas Book,
CEO, Eurex. Ed Pla, Managing Director, Global Head of
Clearing & Execution, UBS, moderated, and must have
notified all the US-based male exchange leaders to wear a
purple tie. The fashion joke was on the new guy Book, who
was in a conservative gray stripe. Ms. Friedman was
thankfully exempt from the alleged sophomoric hazing.
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FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017
Source: FIA
The discussion kicked off with Ed Tilly describing Cboes
focus on education and community. This echoed the theme
that was shared by Walt Lukken. It is clear Cboe and the
industry are keenly aware that the future of futures and
options is not with the gray-hairs at the conference but with
the millennials who manage their lives from their
smartphones. The inclusion of community resonated with
me as well, especially coming from an exchange leader.
Tilly understands that to grow, his exchange needs to
connect to more people. Cboe is making great strides with
this initiative (I will touch upon that again later in this note).
Jeff Sprecher from ICE never disappoints to break things
down to the simplest of terms. He explained the transition
of analog to digital communication but stressed how the
value proposition for exchanges remained the same to
help clients manage risk. Adena Friedman from Nasdaq
reminded the audience that her exchange began a
technology firm and services the technology community.
Terry Duffy from CME stressed the industry does not need
one global rule book and it was OK to have some regional
and country-specific rules if we all respect and follow them.
This appeared to be a message to European regulators that
they will not be the end all and be all of regulation. Thomas
Book from Eurex appeared very serious and described how
Eurex is focused on regulations and the importance of
following the rules.
When the discussion turned to expansion and M&A, there
was a sense of frustration coming from the US exchange
leaders that nationalism seems to be getting in the way of
progress. That said, Duffy did intimate that there are new
FCMs coming out of Asia and he expects continued growth
in this space. Sprecher shared that the economic incentive
to become an FCM has waned; once that changes, we can
expect new market participants. Book, true to his clearing
DNA, voiced a concern around potential concentration risk
with a clearing broker and, of course, that Eurex has a
solution: Direct Clearing.

Sprecher, whose exchange owns the Libor contracts, was
able to squeeze his own commercial into the discussion,
explaining that, although market participants may be looking
for an alternative to Libor, you cannot force someone to
trade a new product that does not make sense.
CurveGlobal, a new interest rate derivative venture between
London Stock Exchange Group and a consortium of banks
and Cboe may beg to differ as they certainly feel their
product makes a great deal of sense.
The active-to-passive theme edged its way into the
discussions, and Friedman decreed that there will always
be a roll for active trading, either alongside passive or on its
own. I cant agree more, as I personally feel that the entire
phenomenon is overblown it is more of a shift due to new
and additional structures and products available to trade
and to be used as benchmarks. The world is getting
smarter, and once-complicated products are now available
to everyone.
The panel wrapped up with some nostalgia since it was the
anniversary of the crash of 1987 and the participants were
asked where they were and what they were doing at the
time. Terry Duffy was on the CME floor; Ed Tilly was on the
CBOE floor; Tom Lehrkinder (me) was on the COMEX floor
and, believe it or not, I am not currently CEO or President
of an exchange; Adena Friedman was on the Nile with her
family (her dad was attempting to manage a portfolio from
that location pre mobile phone); Jeff Sprecher was at
Drexel looking for a loan; and Thomas Book was in college
college, UGH! It was then off to the panel discussions for
me.
3 Rs of Being a CCP
The CCPs New Regimes for Resiliency, Recovery and
Resolution the three Rs panel included
representatives from the sell side (BAML and Goldman
Sachs), clearinghouses (CME Group and LCH), and the
regulators (CFTC). The ground rules were established early
and it was made clear that CCPs are in place to guarantee
the contracts in their purview, NOT to guarantee the sanctity
of the entire marketplace or to bail out a custodian if it has
an issue. Martin Pluves, CEO, LCH, was quick to point out
that each CCP needs to have room to manage its business
and stressed that CCPs should not fall under the same
recovery resolutions that banks must adhere to. Lee Betsill,
Chief Risk Officer, CME Group, added that customer cross-
margining is safer for the industry since it applies correlation
and offsets. This, of course, makes sense but brings in the
concentration risk issue if too many positions are held by
one CCP.
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FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017
Discussion went back and forth around what was the most
likely non-default scenario that would affect the CCP market
structure, and Ruth Arnould from BAML shared (1) cyber
security breach, (2) custodial risk, and (3) general
investment risk. She explained that disruption and losses
caused by these types of risk should not fall back onto the
CCP clearing members. Since BAML is a clearing member,
it appears Ms. Arnould is certainly speaking her book but at
the same time raises questions around lack of clarity if these
situations were to occur.
Acknowledging that there are situations in which incentives
may be available around CCP resolution, I am concerned
that firms may be looking to take advantage of a crisis,
which I believe is simply bad form.
Innovation
The geek in me, with a Computer Science undergraduate
degree, was pulling me to the Innovators Pavilion to see
some of the latest technology and watch the fintech start-
ups present to a panel of judges in hopes of winning
Innovator of the Year and the monetary prize that goes
along with the accolades. I will not list all of the participants
here but will say that artificial intelligence, machine learning,
alternative data, and data-driven applications dominated
the contest. At the end of the competition, Telluslabs won
the event with its agricultural application that utilized
satellite imagery and data to help predict agriculture reports.
Commodity trading sure has changed.
Watergate at the FIA?
The grand ballroom was crowded with hungry conference
attendees (Why does FIA have a breakfast in Boca but not
in Chicago?) awaiting Bob Woodwards keynote speech
over a lunch of very tasty chicken breast with a side of
asparagus and mashed sweet potatoes. Mr. Woodward is a
Pulitzer Prize winner and current associate editor of the
Washington Post. He is best known for his reporting around
the Watergate scandal in the early 1970s and was going to
provide a window into how current president Donald Trump
thinks. While Mr. Woodward was entertaining, I would say
that many in the room were not on the edge of their seats,
with references to an event close to 50 years in arears. The
insights into Mr. Trump were superficial and not unlike many
of the views we as citizens of the country have come to
know. Woodward did make the audience uncomfortable
when he asked for a show of hands for who voted for Donald
Trump. Since the event is attended by people from all over
the globe, it was not surprising that the number of hands
that shot up were few. That said, how many of those in
attendance who did vote for Mr. Trump simply did not have
the intestinal fortitude to raise their hands? You know who
you are.
 FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017

When You Cant Decide What to Watch as the other panel participants. The growing execution
model makes sense in this capital-constrained environment,
The 2pm concurrent panel discussions reminded me of
as firms are happy to provide quality execution and trade
New Years Day when all the college football games (and
advice without the burden of stifling capital charges.
parades) were on at the same time and you could only
Execution-only commissions have remained strong for high-
watch one (no DVR back then) without getting up off the
touch service and one gets a feeling that in addition to
couch and manually changing the channel. I got off the FIA
execution-only shops, the number of introducing brokers
couch and tried to catch a piece of each panel Future of
appears to be on the rise as well. In terms of clearing, Eric
the FCM, L&C: MiFID Legal Issues for US Firms, and A
Aldous from RBC threw out an interesting nugget that his
New Era for Post-Trade Technology. I started with the
firm would use the next generation of ION Technology and
MiFID panel and was immediately hit with the statistic that
that the utility model supported by FIS was not right for his
there are more than 7,000 pages of material around MiFID
firm now. Translation: ION must perform at a commercial
and EMIR. This stat alone confirms my thesis that, as
price; which I bet they do.
January 2018 approaches, no one really knows all the
requirements around the impending regulation and the
This was a great time to exit stage right and head over to
regulators will end up being lenient at the onset if they feel
the New Era for Post-Trade Technology panel. When I
there is positive momentum toward adaptation. Investor
opened the door, I had to dodge a flying bottle as the panel
protection remains the driving force behind MiFID and EMIR
participants where in full barroom brawl mode. John
and those firms that might feel they are enjoying one degree
Omahen from FIS took the high road and spent much of the
of separation (client of a client) from UK regulation may be
time defending the FIS Derivatives Utility model. Silvio
surprised in early 2018 that they also need to comply.
Oliviero, CEO of ION, was not shy when describing the
differences between his firms offering (new technology,
My adrenaline was rushing as I slipped into the back of the
modular product delivery, improved user experience, etc.)
FCM panel only to realize that there was only one client-
compared to that of FIS. Patrick Tessier, COO of Cinnober,
facing FCM on the panel. Since I am an ex-FCM leader
which is new to the futures clearing space, was happy to be
myself, I was hoping to get some insights as to what they
the new kid on the block, backed by a successful track
see on the horizon as well as what they will be focusing on
record with other products. Tessier hinted of an
in 2018 and beyond. Instead, as with every FCM panel, the
announcement regarding a new product rollout and was
topic of fees was brought up. Exchanges defend their fees
true to his word with the press release on Oct. 26
and the FCMs complain they are too high. An interesting
announcing Minium a real-time post-trade technology. Not
twist was added, as FCMs are now faced with many
to be out done on the real-time theme, Arjun Jayaram,
additional internal and external costs, such as the cost of
founder and CEO of Baton Systems, described an
capital, support unit allocations, and market data, and as
environment of near-real time visibility versus real-time
such, it remains very difficult to turn a profit. Because the
delivery. Curiously, Mr. Jayaram is currently not a buyer of
exchange fees remain so high FCMs are finding it difficult
blockchain technology in the clearing and settlement space.
to pass back some of these additional costs of doing
I must disagree, as I feel a distributed ledger will greatly
business to clients. Calling them pass-throughs has not
reduce the time it takes to clear a trade and will speed up
appeased the client base, and variability among FCMs and
the transfer of assets to cover the transaction. In turn,
clients as to who charges for the fees versus who eats them
funding costs will drop, operational risk will diminish, and we
adds to the challenge of recouping them.
will approach a world of immediate satisfaction that the
newer generations demand. The status quo will not last
The topic then shifted to fintech and the panel shared that
forever. Even FIS has threatened to roll out a new
software vendors give the FCMs scale on the fintech front,
technology platform sometime in 2018.
with the build-versus-buy dilemma slanting heavily to buy
with some customization (aka: the hybrid model). Nothing
After balancing three separated presentations, I closed my
new here, as I wrote about this more than a year ago
day at the Taste of Expo, where you are encouraged to walk
Derivatives-trading-technology.
the trade show floor and grab an adult beverage along the
way. This acts as the warm up for the CME Group reception.
The most interesting topic revolved around the growth of
The attendance is always hit or miss, as many people use
execution brokers in the face of a falling number of FCMs.
Wednesday night as an opportunity to corral a prospective
Nick Solinger from the FIA stated that the number of
client or to bring an existing client out for a great meal on
execution brokers grew by 50% over the past few years,
Rush Street. I, of course, did both.
which drew some strange looks from the audience as well

2017 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 4

Politics for Breakfast
Bright eyed and bushy tailed, I attended the Capital
Markets Regulation in the Trump Administration keynote
address by Craig Phillips, Counselor to the Secretary, US
Department of the Treasury. Phillips title alone exudes
policy, but he really is the liaison to the business world for
government regulators. He was tasked to put together
frameworks across many business lines after accepting
inputs from many people and organizations. Business
leaders were encouraged to share their thoughts and he
had an open-door policy. It sounds like President Trump
was wearing his business hat and instructed Counselor
Phillip to report on what was going on in the financial
services world. This is what any good CEO would do when
he/she takes over a company. Mr. Phillips is a no-nonsense
guy and was careful to report the facts. He shared that HFTs
are not creators of liquidity and there is still a place for banks
to uphold this responsibility. He wants to rationalize and
simplify the Volcker Rule and not simply repeal it. For those
paying close attention, Mr. Phillips suggested that initial
margin and repo are open for review in terms of capital
relief, which, of course, would be good news for the futures
business. Finally, he recognizes that CCPs are
systematically important and recovery should be the goal in
the case of a crisis. Thats one of the Rs we mentioned
earlier in this report. The presentation was a little dry but
certainly very informative.
What Is This Crypto Stuff Doing at FIA?
Fueled with a brisk cup of tea I made my way into the
Cryptocurrencies & ETD panel moderated by derivatives
trading legend Don Wilson, Founder and CEO, DRW. The
star-studded panel included Mike Belshe, Co-Founder and
CEO, BitGo; Bobby Cho, Cumberland Mining, a DRW
Company (yes, you caught the connection); Juthica Chou,
Co-Founder, President and Chief Risk Office, LedgerX;
Michael Mollet, Director, Product Development, Cboe; and
Adam White, Managing Director, Global Digital Asset
Exchange, Coinbase.
Low volatility across regular markets is allowing crypto
currencies to gain momentum. Drastic price swings,
coupled with a fair amount of controversy and divergent
opinions, are providing a fertile trading environment.
Mike Mollett from Cboe was quick to point out that bitcoin is
an asset class and therefore there will be the need for a
derivative of the underlying asset to hedge market risk. The
assimilation of bitcoin into the financial ecosystem of
historical asset classes is a huge leap forward despite what
market titans such as Jamie Diamond say. Cboe plans to
be on the leading edge of providing crypto derivative
products and has plans to launch a cash settled future
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FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017
product in the coming months. In a world where new
markets and new products have seemingly all but dried up,
Cboes first-mover position may turn out to be a very
profitable call option on an asset class for which the sky
seems to be the limit.
Juthica Chou of LedgerX, a registered Swap Execution
Facility (SEF) as well as a Derivatives Clearing
Organization (DCO), tiptoed around her exchanges
upcoming launch date. Ms. Chou must have been heavily
prepped by her legal counsel to the point where LedgerX
seemingly already launched and she was reluctant to say it.
She did share that bitcoin contracts on her exchange would
be physically settled and that when trading an option, the
client would need to be fully collateralized. My first
impression was, So much for leverage. But as I thought
about it more, it started to make sense. The liquidity of
bitcoin is thin; the ecosystem to acquire it, settle it and store
it is all still evolving. Why introduce fail risk that would ruin
the market before it even started? The cautious approach
may work here for now and there is enough risk in the
market structure to go around.
Adam White of GDAX/Coinbase boasted that its exchange
continues to build and improve its infrastructure and will
cautiously add new assets over time. According to the firms
website, coinbase.com, it currently is licensed to engage in
money transmissions in most US jurisdictions. White
mentioned that the exchanges are adding 30k-50k new
accounts per day, which I presume includes the combined
institutional GDX and more retail focused Coinbase. Thats
a lot, no matter how you add them up. The products
available to trade on GDAX include not only bitcoin, but
Ethereum, and LiteCoin. GDAX and Coinbase are not
registered like LedgerX or, of course, Cboe, but
interestingly, if you want to trade using margin you would
need to make a representation via a click-through that you
or your organization fit the criteria of an Eligible Contract
Participant (ECP) as defined by Section 1a(18) of the
Commodity Exchange Act. Thank you, CFTC, for lending
your parameters to the cryptocurrency world.
In terms of storing bitcoin, Mike Belshe of BitGo is happy to
act as your custodian. While a bitcoin itself can technically
be in many formats, with the most common at this time
being digital, it is certainly not coffee sitting on barges,
natural gas in a pipeline, or soybeans in a grain elevator.
That said, risk managers have developed a comfort with
custodians managing the operational risk. Mr. Belshe,
seemingly glad he does not work for LedgerX and its
lawyers, went out on a limb and said there is zero chance
that bitcoin goes to zero. On the surface it is a bold
statement because, of course, any value of any asset can

go to zero; but his confidence in the new cryptocurrency
asset class is almost fearless.
Gold, historically the great inflationary hedge tool, appears
to be the hot commodity that the crypto world is trying to
emulate and eventually surpass. Ms. Chou said that bitcoin
is better than gold as an inflationary risk tool. While the CME
Group was not on this panel, it is working with Mr. Belshe
and the Royal Mint to offer cyber coins backed by physical
gold blending the physical world with the digital.
Don Wilson did a great job with the cryptocurrency panel. If
anyone thought his firm was ill prepared to attack this new
market, they are mistaken. Bobby Cho, a trader at
Cumberland Mining, a DRW company, was certainly well
versed in the space; and he should be, because he shared
that Cumberland has been actively trading in these markets
for years. Mr. Wilson also was quick to highlight any
potential abnormalities in market structure, such as how
HFTs are concerned that the Gemini auction may not allow
for proper price discovery. The cryptocurrency marketplace
will need to be reckoned with in tall order now. Putting ones
head in the sand will result in the feeling you have when you
cant access an app on your smartphone or record a show
on your DVR and you need to ask your kids for help. Guys
like Jamie Diamond may have people for such tasks, but I
am sure even he has told his people privately to get on the
cryptocurrency bandwagon everyone is doing it.
Note: On November 1, CME announced it will be launching
a cash-settled bitcoin futures contract based on the CME
Bitcoin Reference Rate.
We Gotta Eat
Shifting from the new big crypto thing to Maintaining
Effective and Efficient Commodity Markets was not easy,
although this was like coming home for an ex-metals and
softs floor employee. Craig Pirrong, Professor of Finance,
Bauer College of Business, University of Houston, was the
moderator, and he certainly provided an upbeat tone and
displayed a keen eye for the business that some academics
may have missed. The panel was manned with some very
senior representatives, including Trabue Bland, President,
ICE Futures US; Adrian Farnham, CEO, LME Clear; Tom
Kadlec, President, ADM Investor Services; and Derek
Sammann, SMD, Global Head of Commodities and Options
Products, CME Group. Discussions quickly turned to China,
the largest consumer and producer of commodities in the
world. Tom Kadlec of ADM was quick to point out that US
commodity markets are very deep and robust, indirectly
helped by the Chinse government, which will always make
sure it imports enough food to feed its people. Mr. Farnham
from the LME (whose owner is HKEx Hong Kong
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FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017
Exchanges and Clearing Limited), shared that Chinese
banks are adding liquidity to the commodity markets and are
particularly active in the base metals space. Improved
transportation and sustainable energy in China will also aid
metals markets. Any group adding liquidity is a welcomed
change of pace. Mr. Bland from ICE also expects to see
growth in commodity products traded on his exchange due
to the Chinese involvement. Aiding in this expected growth
is potentially a regional oil benchmark serving Asia. While
this sounds exciting, there have been discussions around
the development of this product for more than 30 years. Not
all is positive around the increased Chinese involvement in
commodity markets, though, as there is still a concern that
internal market structure risk and the fear of a government
disruption would adversely affect commodity trading.
CME Group is, of course, very active in the commodity
market, with 45% of its daily volume coming from
commodities, according to Mr. Sammann. Commodity
volumes may see some headwinds, as MiFID II-mandated
position limits for commodities come into play early next
year. Mr. Farnham from LME is concerned that the position
limit structure that combines exchange-traded and OTC
positions will be a challenge for firms to manage. The
frustration lies in the fact that many of the position limits
have been in place for 80 years and have worked very well,
so why change them. Mr. Bland of ICE is concerned that
placing position limits far out on a curve will hurt trading and
the ability for firms to hedge.
The panel made an excellent point that the high prices of
energy a few years ago have driven the marketplace to look
for alternative energy methods and improved innovation.
The markets acted exactly as they are designed to and, in
fact, today the US exports oil to the Middle East.
The panel participants added that they are all excited to
work with the new CFTC commissioners and are impressed
with their knowledge of the commodity markets. Cautiously,
they are all keenly aware of the security risks that could
infiltrate their markets and went to great pains to describe
some of the robust processes each exchange and FCM
follows. Many firms now employee a chief information
security officer CISO. Tom Kadlec of ADMIS wrapped up
the 75-minute session by tweaking the CME and ICE
representatives and imploring them to lower the fees they
charge.
An Option on Lunch and Markets
Lunch time on Day 2 directs the conference attendees to
the trade show floor for networking opportunities while you
balance your iPad for tweeting, notebook for notes, plate
containing a pre-made wrap and salad, can of warm soda,

cup of ice, napkins, utensils, and cookie. There is no place
to sit so you must either try to balance all the above or rudely
find a high-top table at a tradeshow booth close to the
crowded buffet. Like an eagle I swooped down on an empty
table at the ICE booth and tried to organize my lunch without
spilling it all over myself. Success. Much to my surprise, Ed
Boyle, CEO, BXO Options Exchange, and a panelist on the
session I planned to attend next were equally adroit and
landed at the same table as me. We traded some
pleasantries and shared a pile of napkins as he prepped for
his upcoming time in the lights. I asked if he was nervous
on the big stage and he replied, I used to be, but now I
realize everyone is a regular person like myself. Thats
coming from a guy who is bucking the trend and opening a
new trading floor operation manned by humans in Chicago.
The next time I saw Ed Boyle he was on stage for the Equity
Options panel. The panel was chaired by Paul Jiganti, MD,
Options Business Development, IMC. The other speakers
were JJ Kinahan, Chief Market Strategist and constant TV
personality, TD Ameritrade; Ben Londergan, President,
Dash Trading; Andrew Schultz, Head of Strategic Options
Business, Susquehanna Group; and Ronald Veith,
Compliance Director, JP Morgan. This may have been the
most diverse panel in terms of job responsibilities at the
entire conference. The panel wasted no time, as Mr. Schultz
stated that he and Susquehanna are against speed bumps
and are concerned how a speed bump can exist in an
environment mandating best execution. Mr. Boyle explained
that speed bumps were developed to help the liquidity
provider and do not ultimately help the investor. Neither Mr.
Londergan from Dash nor Mr. Schultz from Susquehanna
commented on that statement; instead, Londergan said that
speed bumps add complexity to an already complex market.
Mr. Kinahan added that implementing more hurdles and
hops to the equity options market structure only confuses
the retail investor. I will venture to say that none of the
panelist are in favor of adding a speed bump to any of the
options exchange matching methodologies.
With speed bumps put to bed, the discussion shifted to
expenses. The fragmentation of order flow caused by 15
exchanges leads to additional cost burdens. Each
exchange comes with its own set of connectivity and
support costs, as well as the associated exchange fees
levied by the venue. The 15 exchanges are owned by 5
ruling families (see: TABB Group US Options Market
Review: Q3- 2017), with the top two dominating market-
share. Mr. Kinahan is not concerned about the number of
exchanges but instead would like the fees charged by the
exchanges reduced. The other speakers nodded in
agreement.
2017 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 7
FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017
Equity options market structure is a concern, and the panel
universally agreed that the process around rulemaking by
the SEC needs reform. One suggestion was for an options-
only market structure committee similar to the Equity Market
Structure Advisory Committee (EMSAC) that supports the
equity markets. Auctions are an example of market
structure changes that are affecting the markets more than
ever. Mr. Kinahan from TD Ameritrade believes that retail
clients have benefited from auctions and Mr. Londergan
feels the market makers are losing out on the opportunity to
trade against retail flow. Spreads continue to tighten, which,
of course, could be more of a function of low volatility; but it
also could be a result of the shift in market structure.
Mr. Shultz from Susquehanna questioned how bringing a
trade to a trading floor fits into best execution. Ed Boyle of
BOX was quick to point out that 10%-15% of all options
volume is traded on a trading floor currently. Many of the
larger exchanges still have floor operations and adhere to
the rules just like BOX will. Information leakage may be
better limited by using the floor as part of the value-added
service.
You cant escape the Consolidated Audit Trail, or CAT,
when discussing equity or equity-related products. The
concerns voiced by this panel were more around the
protection of confidential and sensitive information that
would be shared on the CAT. There are more than 3,500
people with access to the CAT in one form or another. How
safe are the personal records? Each panel participant
voiced a serious concern, led by Kinahan from TD
Ameritrade, who is responsible for retail investors. This
theme permeates the entire industry, but I have a feeling we
dont know what we dont know and some of this data may
have already been compromised.
On a cheerier note, Mr. Londergan is excited for the new
products in the industry Weeklies, VIX options, and
cryptocurrencies that he feels will help grow the market.
Kinahan agreed and added that education is so important
back to that theme again. New products that are similar to
existing products are often easier to implement and explain
to investors, giving them a higher probability of success. As
with commodities, the markets are doing what they are
designed to do. High stock prices are leading investors who
want market exposure to look to equity options as a lower-
cost alternative to owning the underlying. IPOs in names
that the public knows help add to the excitement around
equity options, as everyone wants a piece of the action.
Oh Where, Oh Where Will My LIBOR Go
My final panel of FIA Expo 2017 was Interest Rate
Benchmarks: Looking to the Future. We have all been
 FIA Boca 2017 Recap: The Futures Industry In Search of Balance | November 2017

bombarded with information supporting the impending Since I was traveling with a colleague, we decided to take
doom of LIBOR. Manipulation, incarceration, and fines have an Uber to the airport on Friday morning instead of the Blue
left a black eye on the unsuspecting benchmark. Whenever Line big mistake. After waiting 25 minutes and three calls
a situation presents itself like this, market participants to the driver, Jeannette finally picked us up. Since we
immediately look to clear the slate and come up with a better passed the 6:30AM traffic threshold, we enjoyed a one-
mousetrap. The problem with LIBOR is that it is not that hour-and-15-minute ride to OHare. Jeannette was a
easy to send it out to pasture. Greg Todd, MD and Associate football fan who wanted to dock the players pay if they did
General Counsel, BAML, shared that more than $350 trillion not always perform at the highest level I will not be
worth of securities are currently benchmarked to LIBOR. In introducing Jeanette to my boss. American Airlines whisked
fact, Jeff Sprecher just floated some new 5-year debt me home without event, and I cant wait for FIA Boca 2018.
instruments that were pegged to LIBOR. Mr. Sprecher may
have been talking his own book a little, since ICE has the Note: There were other interesting panels at the conference
LIBOR Futures contract on its exchange. That said, Finbarr that I was not able to attend.
Hutcheson, President, ICE Clear Europe, stated that LIBOR
is more robust and better than ever. Clearly, the industry
has learned from its mistakes and has established improved
processes to ensure the manipulation that occurred
previously will never happen again. Despite these
improvements, many working groups around the world and
About TABB Group
in many different jurisdictions are looking to bring a new
benchmark to the industry. Consortiums such as Curve TABB Group is the international research and consulting firm
Global, backed by the London Stock Exchange Group, focused exclusively on capital markets, founded on the interview-
Cboe, and global banks, have rolled out an interest rate based research methodology developed by Larry Tabb. Since
derivative they hope will replace LIBOR. Only time will tell if 2003, TABB Group has been helping business leaders gain a
truer understanding of financial markets issues to develop
these new products can attract the kind of open interest
actionable roadmaps and approaches to future growth. By
needed to be successful and unseat the battered LIBOR as
accurately assessing their customer base, competition, and key
we know it. market opportunities, TABB Group works with senior industry
leaders to make critical decisions about their businesses. For
Wrap Up more information, visit www.tabbgroup.com.
FIA Expo 2017 drew to a close on Thursday afternoon. The
booths were being quickly broken down as the next
conference was already being set up in the space. People
with strange new lanyards were spotted in the lobby as I
headed to the secluded bar to catch up with a few old friends
and do some business. The feeling is that the industry is in
good shape and poised to adapt to the changing landscape.
The innovators provide proof that the futures industry is at
the forefront of fintech, with artificial intelligence and
machine learning not only permeating trading but assisting
compliance and regulatory adherence.

There were more than a few individuals who use Expo

exclusively as a networking and job searching event. The
conference had its fair share of middle-aged men explaining
how they got downsized/rightsized/compensationized out of
their most recent job and were hoping to catch on
someplace, anyplace, where they can share their vast
experience. On the flip side, there were plenty of young
fresh faces who have not gone through the rigors of the
adaptation of electronic trading, Y2K, the euro, and the
financial crisis. They will be the future leaders of this
business.

2017 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 8