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Dear Friends,


I just came back to Chicago after attending FIA Boca and New York after skipping last year due to family commitments.


Sunny Florida is always a nice reprieve from the long lasting winters of Chicago (there was a snow storm when I left) and a time to meet up with old and new contacts in the industry. For me, it is also a very opportune time to get a feel for the pulse of the industry.  What is the sentiment like?  What is everyone doing?  What are the threats to this industry?  What are the opportunities?  What should the firm be worried about?  And the most important question of all:  how can we get more business? 



The view from my hotel room in Florida vs. the snow storm in Chicago


Someone I met described this time at Boca FIA as speed dating for the futures industry on steroids.  The whole spectrum of companies involved in the industry is there.  We have people representing the regulators, the  exchanges from around the world, the banks, the prop trading  groups, the IT vendors selling risk systems, trading systems and back office systems, the press,  and of course the “getting rarer by the minute” FCMs ( that’s us!) and the Introducing Brokers.  So in this environment one tries to set up as many appointments as one can, and meetings are perpetually running late as you go from one meeting to another.  Every party has different interests and needs, and in the exchange of conversations, perhaps business can be done.


As Douglas Monieson said, the sentiment this year felt generally positive with slight caution.  Markets are up and what could be a more positive signal than that?  CFTC Acting Chairman J. Christopher Giancarlo gave a rather passionate speech about making things simpler for business with less red tape and regulation. He called it project KISS, which stands for “Keep It Simple Stupid.”  He received a standing ovation from the audience.  (Is this a first for a regulator?)  During the dinner which BMO Harris chaired, their in-house economist also included a positive sentiment about the markets, rising interest rates and very possible tax reforms that would help businesses.  At the luncheon with former UK prime minister David Cameron, his speech greatly impressed me but also made me draw the conclusion that Europe and UK have a lot of work to do on their own that really doesn’t have much to do with the US.  We all have troubles in our own backyard.


One thing I observed is that the lines are definitely blurring between the players, as technology continues to play its part as not merely as a competitive advantage but also as a disruptor of how business is being done.  There is continuous talk of “how to uberize” something.


Prop firms are no longer trading firms, but also technology providers to other prop firms and FCMs.  At Phillip, we grapple always with this philosophical thought of whether we are an IT company providing financial services, or are we a financial firm providing IT services.  Since we have our own back office software, we do provide facilities management to other financial institutions.  Again the line is blurred. Also, traditionally, the brokers provided the direct contacts to the customers, but we also see that the exchanges are also starting to build direct relationships with more margin intensive customers with technology, and providing direct deposit options to the customers.


As the line between who is a customer and who is a vendor continues to blur, I think the most important thing to focus on if you are in the role of business development or sales is not defining who is what, and box the definitions in, but rather think of sales as that you are creating new opportunities for the other party and less on the role you play.  The roles blur.  So as an FCM, we might compete with you for brokerage business, but if we are able to provide you a cheaper better back office system, why not use us?  I think the traditional concepts of vendor and customer will still exist for sure, but it won’t be the business of the future.  Vendors need to create value and opportunities for the customer, not just sell them a system for x dollars.  I wonder even if the traditional model of being a pure IT vendor will still exist in 10 years?  To survive our ever changing world, we (including mostly myself) need to be open to new ideas and not allow our prejudices of what we know get in the way.  That is always the challenge isn’t it?


I always welcome your feedback and exchange of ideas, so if you have any opinions of the industry and what you learned at FIA Boca, please email me. Thanks.


RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance. The information contained herein is provided to you for information only and believed to be drawn from reliable sources but cannot be guaranteed; Phillip Capital Inc. assumes no responsibility for errors or omissions. The views and opinions expressed in this letter are those of the author and do not reflect the views of Phillip Capital Inc. or its staff.