The Online Exchange Landscape: Regulation, Technology and Outlook Insights from Phil Bird, Perfect Channel’s CEO
This is a guest post by Patrick L Young, Chairman ‘Crossfire’ Panel at the 37th Burgenstock meeting hosted by The International Commodities & Derivatives Association
This year’s conference looked at how the exchange, clearing and regulatory landscape is changing. In this post Patrick provides a synopsis of the Crossfire session which addressed a number of topics including: industry growth, clearing and settlement, emerging products, M&A, technology and the role of FinTech.
The International Commodities & Derivatives Association began its annual meetings as long ago as 1979 and moved to the delightful Burgenstock resort in 1980 to create an annual event in the world of commodity and derivatives markets which is broadly unprecedented.
In recent years, with the Burgenstock resort being refurbished, the event has taken place amidst the splendour of the President Wilson Hotel which nestles on the shores of Lac Leman, just on the edge of downtown Geneva and right beside the historic headquarters building of the League of Nations where nowadays the United Nations Commission for Trade and Development (UNCTAD) is housed.
While not quite as old as the Burgenstock meeting itself, Hal Hansen, the head of Cargill Investor Services dreamed up a panel session under the name “Crossfire” which debuted at Burgenstock in 1998. Crossfire has remained the blue riband Burgenstock panel ever since.
I am the third chairman of the session (industry luminary Eric Bettelheim served between myself and Hal Hansen) and over the years Crossfire has become an institution of its own – an opportunity for the leading C-suite players of the parish to discuss markets in a rapid fire format.
Prior to Crossfire, sitting in the elegance of the President Wilson Hotel, many considered the Jacksonian revolution at the heart of America’s vote the previous week.
This year’s Crossfire line up had 5 top level industry figures (in alphabetical order):
- Phil Bird, CEO of Perfect Channel
- Fredrik Ekstrom, CEO NASDAQ Clearing Ab
- Martin Fraenkel, President of S&P Global Platts
- Otto Naegeli, former Chairman of SFOA/ICDA (amongst many other positions)
- Paul Swann, President & Managing Director, ICE Clear Europe
To really appreciate the discussion and all its many elements… well you had to be there!
However, to give you a brief flavour – obviously with so many clearing boffins on the panel, Central Counterparty Clearinghouses (CCP) was a key topic while Martin Fraenkel noted that it was striking that no matter how much markets did change over the years, many things stayed the same…
…albeit as Paul Swann noted, the rise of ICE was an entirely new phenomenon of the past 2 decades.
Moreover, as Phil Bird noted, the markets of today were taking many more nuanced approaches to delivering solutions for market transparency and matching supply with demand to create alternative means of liquidity generation, such as that Perfect Channel staple, auctions.
Indeed, through creating such price discovery avenues, it was a means of not merely adding transparency and trading access to new or less traded commodities but also developing what may in future prove to be markets which can eventually be traded continuously as more participants become involved.
Of course this then centres on the notion of being able to deliver scalable clearing and settlement products which enable risk transfer and reduce settlement and other risks.
Then again, as Paul Swann noted, there is a remarkable oxymoron around the concept of standardised clearing for products such as many OTC instruments which are not themselves standardised.
Phil further noted how in some cases markets of tomorrow will be much more ‘superniche’ specific and that their success can be increased by access to sound collateral management and of course CCPs.
Thus it fell to Otto Naegeli to have the last word. As boss of SOFFEX, he merged the Swiss derivatives exchange into Deutsche Terminbörse (DTB) to create the powerhouse EUREX. Otto noted that we must not forge the future on the past. He emphasised that actors in market structure are the railway track, not the rail cars. In essence, the parameters of railways: the gauge, the signals and so forth transcended whether the train was a steam horse, or a diesel or an electric locomotive or even a future type of power not yet invented.
The key is that as a service industry, the financial markets infrastructure must fulfill the requirements of customers and in so doing it will succeed.
In other words, as Phil said, we need to match supply and demand in markets which also require some clearing, deploying collateral management and CCPs where pertinent while delivering open venues and a coherent approach to distributing market data, all using the power of contemporary financial technology.
And thus another wheel turned through the frantic 90 minutes of discussion which is Crossfire. Next year the circus returns with a fresh series of C-suite guests, back on the Burgenstock mountain.
In 2016, it was a pleasure to chair the panel once again with Phil Bird amongst those joining the many CEOs from the likes of CBOT, CME, EUREX, IPE, LCH, LIFFE and UBS who have in the past sat in the hot seats of Crossfire.