Jeffrey Sprecher gives us his perspectives for the coming year.
Looking ahead to 2017, what are the key trends you see shaping your exchange and the market infrastructure industry more broadly?
Following years of increased electronic trading, the proliferation of products and globalisation of markets, along with a move toward better risk management and regulatory reform implementation, the demand for data continues to rise. This is creating a need for more flexible, innovative data solutions and the ability to deliver and consume an increasing amount of data. A few of the secular trends driving the increased consumption of data include the standardisation of products for electronic trading and clearing, algorithmic and quantitatively-driven trading programs, technology that contextualises vast data sets, the need for independent valuations driven by customer demand and financial reform regulations, and a trend toward indexation and passive investing.
Exchanges themselves are natural producers and disseminators of market information, with new data created every day on our markets. What we’ve done at Intercontinental Exchange (ICE) is use the expertise we developed as a proprietary exchange data provider and apply that to end-to-end data solutions for global market participants. This means we are offering not only the raw data, but the analytics, feeds, desktops and connectivity to carry that data. Increasingly, we see participants demonstrating a growing reliance on instantaneous information – they’re now looking for real-time contextualised information rather than simply raw, quantitative data for inputs to trading, risk management and investment management.
What’s your viewpoint on the 2017 regulatory landscape in your jurisdiction, and indeed globally?
ICE is a global company with infrastructure in the key jurisdictions where market participants do business, which means we have trading, clearing and data operations in the US, UK, Europe, Singapore and Canada. This allows our customers tremendous flexibility in where they can do business, while also giving us a unique vantage point from which to evaluate the apparent disconnect across global financial regulations.
Despite the stated intent, outlined in 2009 at the Pittsburgh G20 meeting, to create global regulatory harmonisation, diverging regulatory regimes have started to balkanise markets. This may continue if the EU continues to increase regulation while the US considers relaxing them, although the UK and EU each have an opportunity to reset their regulatory priorities with Brexit.
In the post-Lehman Brothers world, regulators want increased oversight of their local markets and financial institutions, and the unintentional side effect of that has been the fragmentation of liquidity.
When we started building and acquiring exchanges and clearing houses, we decided not to combine and collocate them from a single geography. I’m more convinced now than ever that we were on the right track. Brexit is the latest example: with the future of EU-denominated clearing on the table, our decision to maintain clearing operations in the UK and on the continent is a positive for our customers. It gives them choice in how and where they want to do business.
Do you think the role of exchanges and CCPs will evolve over the coming years, and if so, how?
One area where I see major opportunity for change over the next couple years is in the way CCPs are viewed and used by market participants. Clearing offers tremendous opportunity for capital efficiency, risk management and extensive regulatory oversight. Market participants and regulators alike are increasingly seeing the value of clearing, which has lead to many instances of OTC products being transitioned into cleared products. With those transitions, CCPs have taken on an educational role – we’re now leading efforts to help a broader set of stakeholders and market observers understand the clearing process, and how it provides for risk management, capital and collateral management, and systemic risk reduction.
For clearing members and their customers, there’s a growing focus on utilising solutions designed to maximise capital efficiency to manage new capital adequacy requirements under Basel III, among other regulations. At ICE, we’re responding to that need by working on new account types and products that enable clearing members and customers to manage collateral and reduce their capital costs while managing risk across more cleared products.
When it comes to regulatory compliance and strengthening the financial integrity of the markets, we’re addressing the need for systemic risk management and transparency through a strong governance framework, extensive risk modelling, real-time risk evaluation, enhanced margin collection procedures, and robust plans for recovery and resolution.
As we continue investing in clearing innovations to address the diverse needs of stakeholders, I think we’ll see an increased appreciation for the integrity and transparency that clearing houses and their clearing members bring to the market.
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