Financial executives speaking at the FIA Expo in Chicago today are resigned to continued political deadlock in Washington on large regulatory changes, although they have some hopes on a few individual pieces of legislation.
Ben White, chief economic correspondent for Politico, set the tone in opening remarks, suggesting no significant legislation will be coming out of Washington next year as both parties focus on the 2016 campaign.
However, Terry Duffy, executive chairman and president of the CME Group, said he thinks Paul Ryan, the new Republican leader as Speaker of the House of Representatives, has some scope to get things done. That because the retiring Speaker, John Boehner, worked with both Republicans and Democrats to pass a debt ceiling increase, avoiding a possible government shutdown.
Turning to the CFTC, Duffy was pleased that it has written about 95 percent of the Dodd Frank rules in its jurisdiction. He also likes that the CFTC’s focus on cybersecurity, perhaps partly because the topic is so complex it doesn’t lend itself to new rule-making.
The first task of regulators is to do no harm, said Richard Gorelick, CEO of RGM Advisors.
“US futures and equities markets are functioning pretty well,” he said. “There is room for improvement — the US equities market is overly complex and there are legitimate concerns about fixed income and some liquidity issues there.” He’d like to see legislators driven by data rather than anecdotes.
Dan Roth, president and CEO of the National Futures Association, said that since the industry has experienced a spate of rule making it might be time for regulators to step back and see if the rules are working — are the required filings from chief risk officers useful? Is there a need to revise some rules in light of experience?
“We have to be concerned about increased regulatory burden which leads to more concentration,” he added. Among FCM firms, regulation has driven concentration. Regulators need to be smart about regulation so they don’t drive firms out of business with regulatory costs.
Duffy agreed.
“We have a lot of small firms that cannot handle the costs. We are losing smaller firms and if we think we are going to have three or four large banks, they need the other side of the trade to compete. Regulators have to understand it can’t be one size fits everyone,”
Liquidity, especially in the US bond market, has been a frequent topic of discussion at the Expo. Duffy attributed the shortage of liquidity to a lack of movement in the market.
“Lack of movement will take participants away, and the less participants will lead to vacuums of liquidity. Then people are not actively managing it real time because they don’t expect something to happen.”
He contrasted the US bond market with the oil markets where West Texas Intermediate Crude and Brent had ample liquidity even as the prices plunged from 92 to 36.
“When you see markets move, participants come back in because they have to manage that risk.”
The Fed did a good job on the Treasuries flash crash, said Gorelick. It was a good multi-agency review that was data driven, he added, and they followed up with a series of blog posts where they tried to assess if there is actually less liquidity in the treasuries markets.
“They seemed to conclude we are not seeing a downtrend in liquidity.”
Mark Wetjen, formerly a CFTC commissioner and now a managing director at DTCC, said if regulators are concerned about a shortage of liquidity they should analyze regulations to see if they can attract more.
As for presidential politics, the consensus was that Florida Senator Marco Rubio would be the Republican challenger to Democrat Hillary Clinton, with Clinton the likely winner.A few speakers thought Texas Senator Ted Cruz had a shot at the Republican nomination