From the February 2014 issue of Futures Magazine • Subscribe!

Time to innovate

While attending the Futures Industry Association Expo in Chicago this past November an industry veteran asked me what I thought was the theme of this year’s expo. My flippant response was “clinical depression.”

And this was before the CME Group slapped the industry with higher exchange and data fees.

But there was so much talk of burdensome new regulations, commission compression, the zero-interest-rate environment, MF Global fallout, etc., etc., etc. Basically, it was bereft of an optimistic viewpoint.

Weeks earlier I attended an event for industry lawyers and compliance officers held at the Illinois Institute of Technology’s Chicago-Kent College of Law that was so depressing — even

for the lawyers who benefit from work coming in from added regulations and compliance mandates — that I wondered about the future of the industry.

Now I know business people tend to exaggerate the cost of regulation and often can sound like Chicken Little when moaning about every new rule that comes down the path, but some of the new Commodity Futures Trading Commission regulations are downright silly. One speaker summed it up by noting that she perceived the attitude from the CFTC in regard to her concerns was basically: ‘We don’t care.’ And perhaps that is the real cause for the downcast outlook, not so much the added burden of certain regulations — many of which were necessary — but the attitude that the CFTC has the power to make rules and believe they know what’s best for the industry, better than

those who have been working in it over a period of time that saw dynamic growth and experienced fewer problems than the traditional investment world. None of that mattered to Gary Gensler and his band of rule writers, it seems — it was their ball, and they were running with it.

After writing a blog on that event and looking over my last few, I saw a trend, and it was a little depressing. There is nothing that I wrote that I would have taken back, but it all did seem bleak. And face it, nobody likes a black cloud. It was at that time that I saw a piece by Hilary Till regarding Chicago’s history of innovation. She correctly pointed out that many of the great innovations that led to transformational growth in the industry came out of difficult periods. And make no mistake, the industry is in a difficult period as chronicled in Steve Zwick’s story, Exchanges and regulators let traders down in 2013.” But I did not want to be a downer, particularly in my first issue back. So I thought it would be appropriate to present both sides of the coin. Talk about the difficult environment the futures industry finds itself in, but also point out that it is in periods like these where opportunity lurks (see “Chicago’s futures industry: A story of crisis and opportunity”). Till provides a historical viewpoint and points out that we already have seen it at play. Where would we be if not for the work of the Commodity Customer Coalition stepping up to defend former MF Global customers? No doubt in a worse place. 

And it is appropriate that we also look at the energy sector in this issue. Who would have thought a few years ago, when people were talking peak oil, that we would be in the midst of transformational change with the United States taking the lead role in new methods of energy production and on track to become the world leader in decades to come (see “The new world of energy”).

Most energy analysts don’t expect the increased crude oil production in the United States to lead to a dramatic break

back toward more historical price levels in crude oil, but six years ago nobody thought natural gas would ever go back below $5 let alone $2, which it did briefly. Phil Flynn reminds us how commodity cycles tend to play out (see “The natural gas economy is a long-term play”). It is a testament to the self-correcting nature of markets.

The same could be said for regulatory cycles and life in general. While movement may seem slow at first, the cycle is running its course. When change or innovation occurs it often can be dramatic.

The type of dramatic changes that happened in the U.S. energy space can happen with the futures industry as well. In fact, it already has several times.



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