The intense market volatility seen during the beginning of the global pandemic, particularly in April and May, underscored both the interconnectedness of the markets and the fact that not every participant is at the same level, said Chris Edmonds, global head of closing and risk at the Intercontinental Exchange, Inc.
In a video interview with John Lothian News at FIA Expo 2021 following a roundtable on operational efficiencies, Edmonds said it became clear during COVID-19 and the abrupt move to working at home that more efficient ways to share information sooner are needed. That would help ensure the reconciliation process, the amount of margin being paid on behalf of the client, is consistent with the amount of risk that the clearinghouse holds.
Edmonds said the Futures Industry Association’s “Blueprint for Change,” released by the FIA on November 2, “is really a call to action” around those issues. “We have to do a front-to-back (look) at the lifecycle of a trade, where the breaks took place … if they are specific to a particular client, or a type of client,” he said. “And try to define what the universal standards are.”
If we are going to put in new products, we need to process them at a much higher rate, Edmonds said. “We are looking forward to seeing the industry come together to see what those standards might be.”
“If not educated on a product, you’re not going to be able to make a risk-based decision on whether or not it’s good for you or bad for you over the long term of your business,” he noted.
“The devil is in the details,” Edmonds added, predicting there will be a lot of negotiation and education that goes on before the industry determines where investments have to be made.
“If not educated on a product, you’re not going to be able to make a risk-based decision on what is good for you or bad for you” over the long haul, he noted.
Asked about the issues facing clearinghouses, Edmonds pointed out that the “pain points” often are different for different FCMs, even when they are members of the same clearinghouse and are members of the FIA. Global standards need to be harmonized, he emphasized.
At the same time, software vendors need to take a time out on this one, he said. “Until we agree on the problem, I don’t know that they are going to offer us a solution.”