The Nasdaq Clearing member default that shook the exchange industry in September was a hot topic at the Futures Industry Association’s 14th Annual Asia Derivatives Conference in Singapore on Wednesday. Much of the focus during the Exchange Perspective panel discussion focused on what markets learned from the event and how the industry would respond.
“We shouldn’t be sitting here saying it’s never going to happen again,” explained London Metal Exchange CEO Matthew Chamberlain. “We should be saying we will do everything we can to prevent it, but if it does happen again we will be ready.”
Cboe Gloabl Markets Chairman and CEO Ed Tilly believes exchanges should be trusted to find the right solution.
“This does not require a regulatory fix. The potential for overstepping is way too high,” Tilly said. “I think this can be fixed via governance changes.”
THE MATTER OF MARGIN
The panelists agreed that margin adequacy would be a key component in preventing another event like the Nasdaq default, but that sparked a deeper conversation about how margin levels are determined.
Loh Boon Chye, the CEO of SGX, stated that exchanges don’t set of margin levels based on the competition, but rather on what it takes to maintain safety in the system.
But LME’s Chamberlain explained that not all exchanges are coming at the margin question from a level playing field because different regulatory regimes have different expectations when it comes to margin. Eurex CEO Thomas Book added that it makes little sense that any contract would have to be handled differently from a margin perspective across the various regions around the world.
Ultimately, SGX’s Loh predicted the industry would find a sensible solution to the margin question and the whole question of “skin in the game” would not be an issue by next year’s FIA Asia event.
BREXIT AND BEYOND
When the conversation turned to Brexit, LME’s Chamberlain expressed confidence that a workable solution would be reached and pointed out the role regulation has played in an area of financial services that has received a great deal of Brexit-related attention. Chamberlain explained that the growth of the swaps market in London was propelled by regulations that required the clearing of swaps, so it is a strange turn of events that such growth will now be reversed or fragmented because of yet more regulations that will follow in the aftermath of Brexit.
Eurex’s Book, whose exchange stands to gain market share due to Brexit, said he sees the saga through two different dimensions. The first is all the uncertainty about the transition that is grabbing headlines every day. The second dimension revolves around accepting that whenever and however the details of Brexit are finally settled, there will be a new normal for many aspects of global financial markets.
Book hopes that a Brexit-induced new normal will help exchanges like his win business as a gateway for Chinese firms to enter Europe and also help Eurex become a trusted partner in building out onshore markets in China.
“The winds of change are there in China; and we want to be the windmill to help,” Book said.