The Derivatives Industry in 2014: Adapting to Change & Creating New Opportunities

By Nicki Gilmour and Jessica Titlebaum

Starting today and running until the end of the month, the Glass Hammer will profile women that have immensely impacted the derivatives industry. We have women running exchanges, clearinghouses, and technology firms that have not only influenced the industry’s operations, but have paved the way for other women to leverage opportunities in derivatives by becoming mentors and sponsors.

In the past 20-years, the derivatives industry has transitioned from floor-based operations with a plethora of players to electronic executions with just a handful of major players as a result of countless mergers. The industry is constantly moving, evolving, and maturing. Due to its global reach, there is always a market to trade and a regulatory requirement to explore, no matter what time of day it is. With a heavy emphasis on technology and speed, the derivatives industry truly understands the concept of leading edge. However, these aren’t the only areas where leaders have emerged.

CBOE Executive Vice President, General Counsel, and Corporate Secretary, Joanne Moffic-Silver, says this is a critical time for derivatives markets.

“Our industry faces many challenges: an uncertain and still evolving regulatory landscape, an increasingly global marketplace that transcends borders, the relentless march of technology, and a host of other developments,” Moffic-Silver said. “In the U.S., new Fed Chair Janet Yellen and new SEC Chair Mary Jo White will lend strong leadership to the industry as we address these challenges. Both are infinitely qualified and, I expect, will do a terrific job in their respective roles.”

Moffic-Silver says that moving forward, the industry’s continuous efforts to refine market structure will remain front and center.

“I believe that providing the highest standards in market regulation and compliance, further strengthening technological infrastructure to ensure market performance and resiliency, and mitigating the potential threat of cyber-attacks will continue to be high priorities as well,” the CBOE VP said. “A safe, reliable, and trusted marketplace is critical for investor confidence and CBOE is committed to working with regulators, legislators, and industry participants on these important issues in 2014.”

Where the Rubber Meets the Road
From a regulatory perspective, there has been much to discuss over the past few years with both the US and Europe working to make sure the rubber meets the road when it comes to ensuring that the laws made behind closed doors successfully impact the trading of derivatives and other asset classes. As the role of chairman of the Commodity Futures Trading Commission transitions from Gary Gensler to the somewhat unexpected choice of Timothy Massad, it begs the question: who will keep financial industry reform going? Gensler was described by Treasury Secretary Jacob J. Lew as “one of the leading reformers after the financial crisis.” Will Massad prove as effective?

The Volcker Rule, introduced in 2010 and discussed at length by our Women on the Buy-Side panelists in 2010 and again in 2011, has yet to be implemented. Sarah Lee, Managing Director, Global Head of Fixed Income Derivatives and Regulatory Reform – Legal, Bank of America Merrill Lynch, says these structural shifts will take time.

“The industry is still digesting all the ongoing changes and predicting the ultimate impact of not only the changes, but the interplay between the wide spectrum of regulation beyond derivatives, ranging from capital reforms to Volcker is premature,” Lee said. “At a minimum, the outlook is increased complexity and a structural shift in how global financial markets operate.”

Sarah went on to say that as we move into 2014, the topics keeping derivatives professionals up at night will likely to include the increasing costs and the increased complexity of doing business, as well as figuring out how to be nimble in the implementation of changes so there is little disruption to clients and the business.

Derivatives a ‘Career Bright Spot’ for the Ambitious
Working out the legal, operational, and technical implications of all the recent changes in this fast moving industry will certainly create career bright spots for ambitious women and men.

Shearman & Sterling Partner Donna Parisi is also Co-Practice Group Leader of the firm’s Asset Management Group, which includes the firm’s Structured Products & Derivatives team. Parisi says the opportunities for insightful, well-informed lawyers are great within the derivatives industry, but it’s crucial to stay current.

Parisi advises that besides being “substantively strong” in your given discipline, the Shearman & Sterling Partner also recommends carving out time to network and think more broadly.

“Take a step back to think about the public policy considerations related to your work,” Parisi said. “Always try to understand the business imperatives that are driving your customers and clients, whoever they may be. Be inquisitive. Look for opportunities to meet new people both within and outside your industry and make connections, among people and among ideas. It will make your work more rewarding, add value to your customers and clients, and set you apart from the crowd.”

Sarah Lee, Managing Director, Global Head of Fixed Income Derivatives and Regulatory Reform – Legal, Bank of America Merrill Lynch, puts emphasis on staying current and adds an insightful comment for our readers.

“The opportunities are great for insightful well informed lawyers.  Stay current, information is a valuable commodity as business leaders want to stay up to date with the ever changing regulatory landscape.  At the end of the day, if you are knowledgeable and thoughtful about the transformative effect of regulatory reform your star will rise naturally.”