Walt Lukken is the President and CEO of the FIA, a Washington, D.C.-based trade association that represents participants in the regulated, listed and cleared derivatives markets. He is also CEO of FIA Global, overseeing the affiliation of FIA, FIA Europe and FIA Asia. FIA’s membership includes the world’s largest derivatives clearing firms as well as leading derivatives exchanges and clearinghouses from more than 20 countries. In 2015, Walt was also appointed as a Director of FIA Japan.
Walt previously was CEO of New York Portfolio Clearing, the derivatives clearinghouse jointly owned by NYSE Euronext and the Depository Trust and Clearing Corp. Before joining the private sector in 2009, Walt served as Acting Chairman of the Commodity Futures Trading Commission for 18 months and as CFTC Commissioner since 2002.
FIAJ: FIA has just announced the merger of FIA, FIA Asia and FIA Europe into a single entity. What led you to make such a move, what are your objectives and what benefits do you expect for your members? I’m excited for the merger because it will allow us to enhance our service to our members. This merger is the next step in an ongoing drive toward integration that FIA, FIA Asia, and FIA Europe began years ago. As our industry has globalized and our markets have become increasingly interconnected, FIA has grown and expanded as well. Since June of 2013, we’ve been working together as affiliates under FIA Global, which helped us to better coordinate policies and priorities. The merger will allow us to build on this collaboration even more, and combine resources and assets from each individual association to enhance our advocacy work. That means that policy and advocacy for the futures, options, commodities and cleared swaps markets will be coordinated on a global level, allowing us to speak with a single voice, which magnifies our message.
We’re also maintaining our regional advocacy focus with the merger. Regional staff and Advisory Boards from the Americas, Asia, and Europe will continue to develop and maintain the productive relationships with government officials and industry professionals FIA is known for at the regional level.
We’ll be able to leverage this regional expertise to amplify our global coordination, and vice versa. We’ll also be better able to offer more globally-focused member services, which will enhance our conferences, educational resources, and member communications. Our members will enjoy the best of both worlds: regional expertise and global coordination.
FIAJ: Following the Lehman shock, US and European regulators have pushed a number of major reforms affecting our industry. Where are we in the implementation of their plans? What is coming next? What new issues have arisen? Global regulatory coordination is an area where FIA’s progress toward the merger is already benefitting our members—they can see our latest work on clearing issues in Europe, Asia, and the Americas on a single page on our website.
After the financial crisis, the G20 prioritized central clearing as a way to mitigate risk. However, as different countries have implemented different regulations at different times, we’re seeing a number of challenges for firms that clear in multiple countries. We must make sure that the regulators work together so that market participants and infrastructure can operate on a cross border basis. U.S.-based CCPs who are registered with the CFTC and do business with European participants are required under EU law to be “recognized” by having equivalent regulations to those in Europe. The EU has yet to designate the U.S., as well as other non-EU CCPs, as equivalent.
According to the International Banking Federation, capital requirements for European clearing member banks could increase by as much as 30 to 60 times if the EU doesn’t recognize U.S. CCPs as equivalent.
It’s clear that we need to address this. I’ve long advocated for mutual recognition and substituted compliance as the path forward. Comparable rules and regulations can ensure equivalent regulatory outcomes while reducing the cost of duplicative efforts.
FIA has prioritized harmonizing cross-border regulatory requirements and has been working in the U.S. and Europe to drive this forward. Harmonization does not mean a race to the bottom. We believe it can be used to raise standards. We’ve put together a paper on how clearinghouses can assess and manage their risks. Our goal is to ensure that the risks of central clearing are both transparent and effectively managed.
What it comes down to is this: if global regulations are not well coordinated, markets could fragment regionally and lose liquidity.
We have global markets, and competing regional approaches are detrimental to all of us.
FIAJ: Cybersecurity is an issue that is of concern to many market participants and the FIA Japan Technology Committee has several on-going projects around this theme. How is FIA responding to this type of threat?
FIA prioritized cybersecurity as a key issue of concern for our industry. We know that the threat of attack is growing rapidly: IOSCO reports that more than half of the world’s exchanges have experienced a cyber-attack. And some experts estimate that financial institutions are four times more likely to be attacked than other industries.
Because the threats are growing and evolving at such a rapid rate, there’s no way to insulate a firm completely from attack. So I think we need to change our mindset—we’ll never achieve 100% cybersecurity, but we can excel at cyber risk management.
In the U.S., we encourage our members to join the Financial Services Information Sharing and Analysis Center (FS-ISAC), which is a public-private partnership that provides real-time information on cyber threats and educates its members on cybersecurity. We’re also working with regulators and industry experts on cybersecurity standards that will ensure the health of our industry while allowing for innovative and evolving responses to cyberthreats.
I think the key is to work together and share best practices, since no one faces this threat alone.
FIAJ: You were a keynote speaker at the FIA Japan conference held in Tokyo this past May, where part of the discussions focused on establishing Tokyo as a financial center and how Japan might become more significant as a leader for Asia. What are your views on this possibility? Can Tokyo truly become the financial center for Asia? The FIA Japan conference did a great job of framing this issue within the broader context of globalization evolving financial regulations. It’s simply not possible to have significant or sustainable growth without an structure that facilitates cross-border activity.
As Japan works to expand its financial influence, I think its greatest strength will be its commitment to markets. This accessibility, along with Japan’s emphasis on healthy and well-regulated markets, creates the confidence and reliability that is necessary to drive growth. This commitment to openness and transparency is also a factor in the degree of economic integration between Japan and the U.S. Our nations enjoy a high degree of mutual trade and investment, which has been a positive influence on job creation, innovation, and economic development in both our countries. The White House released figures this summer ahead of Prime Minister Abe’s visit noting that the U.S. has more than $120 billion invested in Japan, while Japan is the second largest foreign investor in the U.S. at $350 billion. It’s in everyone’s interest to see Japan’s financial industry continue to grow.
It’s also clear that Prime Minister Abe and the Japanese government are committed to developing Japan’s economy and, in particular, the financial sector. The Japanese government has implemented several initiatives make its futures markets more attractive for trading. When decision makers understand the importance of strong and healthy market growth, it’s far easier to make progress since policymakers and regulators are careful to consider how their decisions might affect the financial industry.
I’m encouraged by recent measures of growth in Japan—I believe we’re already seeing signs of a resurgent financial industry. For instance, the Nikkei index is up 37% in dollar terms since 2013, and many small companies are increasing exports and buying back stock. The Japan Exchange Group’s data shows that the value derivatives trading has risen to nearly JPY 1.4 trillion, which is the second-highest on a half-yearly basis. And understand that a recent report by the Bank of Japan noted that the financial system has a strong loss absorption capacity and a high degree of resiliency.
Taken together, these factors paint a very positive picture. When I look at Japan, I see a market primed growth. I think there’s every reason to be optimistic about what’s next.
FIAJ: Thank you for sharing your insights with us.