Monday, March 14, 2016

FIA Expo - What is the value to the customer?

The futures industry meets at this time each year to have their annual FIA Expo in beautiful Florida. It allows the executives of the exchanges, FCM's, and regulators to rub elbows and discuss the issues of the day. The FIA does a lot of good behind the scenes work for the industry, but an interesting question is the value of this event for the futures customers, the actual end users of these markets. The agenda gives little information on this value, so I thought I would list some of the issues or questions that may be important for end clients.

  • Market consolidation of FCM's - The number of FCM alternatives are shrinking with the big firms (banks) only taking more market share. Why is this good for the industry?
  • Market liquidity and the potential for flash crashes - A growing concern across all markets is liquidity or the lack of liquidity at key times. This concern is different than the risk management of large market moves. A liquidity crisis will affect the industry and keep traders away from the markets. What is the industry doing to help increase market liquidity for users?
  • Position limits - How will these rules be determined? When there is market uncertainty about rules, everyone is hurt.
  • Basel III and futures trading - The increase in capital requirements from new rules is making it more costly for FCM's to run their businesses. Are these capital costs appropriate? How are these costs going to be passed onto customers? Can these requirements be easily explained to customers?
  • Fintech and FCM's - Are there disruptive technologies that are going to change the industry? Is this going to be good for customers?
  • Market composition and futures trading - High frequency traders are a critical part of volume. If the composition of trading changes, what will happen to liquidity?
  • The for-profit versus mutualized model for exchanges and clearinghouses - Is the risk properly priced and is the corporate organization in the best interests of the client? 
  • Clearinghouse risk and swap activity - How is the risk shared and where is the balance of power?
  • Processing trades - What are the true costs of processing trades. What are clients really paying for with their brokerage?
  • Appropriate safeguards for customers - Is there enough or too much regulation of FCM's and exchanges? What are costs and benefits of this regulation?
  • State of the industry - The success of the futures industry may not be measured just by volume or open interest. Are customers better today than three or ten years ago? How can the quality of the industry be measured?
Most of these questions are not new and have been part of ongoing discussions, but it still is important to focus on issues relevant for customers, the ones who pay the brokerage.

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