Global regulatory structure gets closer as Futures Industry Association merges all entities

The Futures Industry Association (FIA) whose membership consists of international derivatives clearing firms and exchanges across 20 countries, has announced that it will merge its global operations into one entity, making further steps toward the possibility of a global regulatory structure for the online trading industry.

Currently, the FIA operates under different business units that represent each continent including FIA, FIA Asia, FIA Europe and FIA Japan.

Announced by Walt Lukken, President and CEO of FIA, the integration is the net step toward the integration program which the FIA, FIA Asia and FIA Europe began several years ago.

Mr. Lukken considers that as the electronic trading industry has globalized, and the markets have become interconnected across different countries, the FIA has had to keep pace with various evolution that has occurred int he markets.

FIA  is a non-profit trade association and membership is voluntary. Its function is to advocate for the listed and cleared derivatives markets, promote the development of industry standards, serve as a platform for information-sharing with members and the public, and support open, transparent and competitive markets.

Since 2013, the FIA’s seperate units have been working together as affiliates under FIA Global, which has been a good development ground in which to coordinate policies and priorities.

The merger will standardize policy and advocacy for futures, options, commodities and cleared swap markets and will allow the organization to speak with a single voice.

Reform and standardization spurred by Lehman demise & financial crisis

Some seven years have passed since the demise of Lehman Brothers, which was the catalyst that spurred the regulatory authorities in the EU and the US toward completely overhauling the trading infrastructure, especially with regard to processing trades via a central counterparty in the US.

After the financial crisis, the G20 prioritized central clearing as a means of mitigating risk but different countries have implemented different systems at differtn times, therefore the FIA’s remit is to ensure that all regulators globally work together so that market infrastructure is compatible on a cross-border basis.

Not an easy task at all, as this is a very bureaucratic undertaking.

For example, US-based central counterparties which are registered with the US Commodity Futures Trading Commission (CFTC) and do business with European participants are required under EU law to be recognized by having equivalent regulations to those in Europe.

Currently, the EU has yet to designate the US and other non-EU counterparties as equivalent.

The International Banking Federation has reported that capital requirements for European clearing members could increase by as much as 30 to 60 times if the EU does not recognize US central counterparties as equivalent.

Cybersecurity a priority

Hacking and misuse of critical data are high on the list of priorities for the FIA, which recognizes that whilst we will never have 100% cybersecurity, the industry can excel at cyber risk management.

In North America, the FIA encourages its members to join the Financial Services Information Sharing and Analysis Center (FS-ISAC) which is a form of quango insofar as it being a part public and part privately owned partnership that provides information on cyber threats and educates members on cybersecurity.

Mr. Lukken, who is a former CFTC Commissioner, considers that it is important that information is shared between entities as we do not face the threat of hacking alone.