IDX 2009: Influential Men and Women in Derivatives Gather in London
By Jessica Titlebaum (Chicago)
London is one of my favorite cities so I jumped at the chance to travel across the pond to cover the International Derivatives Expo (IDX) last week. Hosted by the Futures Industry Association (FIA) and the Futures and Options Association (FOA), the two-day event gathered some of the most influential players in the derivatives industry to discuss the ever-evolving trading landscape. The meaty agenda covered a wide range of topics, from the future of electronic trading to the arms race that is developing in the credit default swap sector.
Almost one entire day of the conference was dedicated to discussing the sticky issue of clearing of credit default swaps (CDS), the swap contracts at the heart of the economic crisis. Competition in this estimated $62 trillion dollar sector has been heating up as leading exchanges prepare to launch their CDS clearing divisions. Currently, the InterContinental Exchange (ICE) is the only exchange offering credit default swap clearing services through their clearing arm, ICE Trust U.S., which began operating in March of 2009. Since inception, it have cleared over $1 trillion in CDS index-based contracts.
One reason ICE has been successful in this market is because of its holistic approach to credit default swap clearing. Its acquisition of companies like The Clearing Corporation and Credit X have allowed it to offer front-to-back trade processing and clearing services. But ICE’s expansion of services continues. Its upcoming agenda, as announced at the convention, includes the launching a European CDS clearing division of ICE Clear Europe and the provision of services for the clearing of single name CDS contracts.
ICE’s competitors in the credit default swap sector – the CME Group, Eurex Clearing and NYSE Liffe (who clears through LCH.Clearnet) – announced expansion plans of their own. Eurex Clearing advised that is in a testing phase of its services, preparing for a July launch date to meet the deadline set by the European regulatory entity. And both Eurex Clearing and the CME Group are preparing to launch with CDS clearing services for both index-based and single name contracts.
The CME Group, which has been at the forefront of futures trading and technology, is soon to face another challenge: the ELX Futures Exchange (ELX) is launching later this month, with U.S. Treasuries as their first contract. BGC Partners, which provides the technology for ELX, announced last week that they have selected CQG as a member of their ‘preferred vendor program,’ which offers selected network providers and independent software vendors direct access to eSpeed, BGC’s proprietary trading platform. CQG will provide co-located hosted trading gateways to BGC’s eSpeed platform, providing benchmark treasury traders with ultra-low latency access, or limited delay in transferring data from one point to another. The less latency in a trading environment, the more trading opportunities for a trader. Co-location, the placement of trade execution technology close to the exchange order matching engines, is a growing trend in the electronic markets because it minimizes latency and allows traders to take advantage of faster execution times.
After each packed day, conference attendees networked and schmoozed into the evening. And, on the last evening, attendees participated in a charity gala dinner to benefit Futures for Kids (FFK), a charitable foundation organized by volunteers in the futures and options industry. The event was sponsored by some of the biggest names in the capital markets, including the CME Group, Fortis Bank Nederland, LCH.Clearnet, Liquid Capital Group, MF Global and Trading Technologies. All proceeds from the £130,000+ raised will go to the three FFK-chosen charities: Demelza, EveryChild and HopeHIV.
While much information was shared at IDX, it seems that more questions were raised than answered. Questions like: Who will come out on top in the clearing of credit default swaps in Europe and in America? What does the future hold for credit default swaps in general? Will ELX be successful in its attempt to kick the CME Group out of its top spot for futures trading? But we will just have to wait until the movers and shakers from the derivatives industry gather again later this year at the FIA Expo in Chicago for answers to these questions and more.
