The annual Futures Industry Association (FIA) conference in Boca Raton, Fla. is a good time to take the industry’s temperature. The 2012 meeting was somewhat somber, with MF Global still on everyone’s mind (PFG hadn’t been discovered yet). Volumes were dropping and customers were in hiding. Dodd-Frank still had many gaping holes, and, it being a U.S. presidential election year, there still were many regulatory uncertainties. But the 2013 Boca meeting seemed upbeat.
Volume in 2012 did drop, about 12% down overall in U.S. markets and 17% overall on international exchanges. But those generalities don’t really tell the story (see “Traders’ View of the World,” page 32). During one FIA session, moderator Maria Bartiromo asked exchange CEOs about the muted volumes. Magnus Böcker of the Singapore Exchange said he didn’t have a comment because his exchange grew in volume last year. He’s right, Singapore’s main exchange had about an 11% growth in volume, largely driven by its FTSE/China A50 Index futures and Nikkei 225 options products.
What’s notable about this growth is it was in financial products, which for the most part were loss leaders across the globe. For example, the CME Group’s E-mini S&P 500 futures contract volume was down 23% for the year. In the United States, overall futures volumes in interest rates were down 21%, equity indexes down 20% and precious metals down 17%. The strong growth (and apparently proper diversification) was in commodity futures products: Ag commodities up 6%, energies up 21% and, perhaps an indicator of the strengthening economy, non-precious metals up 33%. It was a similar story at overseas exchanges, with the star being energy products, compliments of ICE Europe and the Dubai Exchange, with growth in volume almost tripling compared to last year.
When asked where growth will be in the next year, almost all CEOs saw China as the main driver. And positive exchange growth typically was seen in the Asian markets and products.
And though cautious, the group overall was positive on 2013 growth. “Money is cheap,” said Jeff Sprecher of the IntercontinentalExchange, which has a bid out to buy the NYSE/Euronext. It was because of that he was able to make a bid, he added. Bob Greifeld of NASDAQ OMX said his company had record earnings despite lower volumes. He thought this was largely because of the move to passive investing in using exchange traded funds, which generally attracts less active traders.
Another panel on customer protections turned into a lively discussion about customer insurance. John Roe, of the Commodity Customer Coalition, noted an insurance fund was the only way people would come back to the market. Mike Dawley of Goldman Sachs said a task force is doing an insurance study to measure its potential impact on the industry. Mentioned in the discussion was the insurance study done after Volume Investors’ failure in the 1980s. The panel wondered what was the upshot of the study. I can tell them: It was tabled because it cost too much. I’m convinced what happened with PFG and MF Global isn’t why many traders are not coming back, but because of what NewEdge CEO Nicolas Breteau told me in Boca: Low interest rate environment, massive deleveraging of bank prop desks, hedge fund taxation and regulatory uncertainty. With the stock market making new highs in March, it already looks like 2013 will be a better year. Traders, even those affected by MF Global and PFG, will come back in, and insurance will have nothing to do with it.
NOTE: Everyone at Futures and The Alpha Pages extends their condolences to Liz Cheval’s family. She died in early March of a brain aneurism. Liz was one of the famed “Turtles” and a successful commodity trading advisor who helped grow the industry with her success and knowledge. She will be missed.