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On the Road: the Diary of the traveling Salesman by David Klotz

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Over the past month, the Phillip team went up in the air and on the road.  Abroad, we attended the FOW sponsored Trading Amsterdam and hosted our own Trading Asia Symposium in Dubai. 

Closer to home we traveled to Overland Park, Kansas for the 2nd annual CFTC Kansas State Agricultural Commodities Conference.

There is nothing like traveling and gaining a broad perspective of the state of derivatives industry both globally and locally. Here is what we saw...

 

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Amsterdam FOW conference

Amsterdam is the home of options trading, both options on securities and options on futures. If you want to learn the options trade, do visit some trading houses along the Amstel river!

From attending the conference, we got the feeling that Europe is still working out the implications of Brexit & the MIFID/EMIR regulations. Until there is more clarity on both of these initiatives, we don’t think traders are going to be taking any chances or undertaking new projects they don’t have to.

There is also pushback regarding the costs of implementation for these events – moving traders around Europe & splitting up trading desks to conform to regulations is hitting everyone’s wallets. With little to no volatility in the markets, there is a real risk that more players will just leave the space rather than spend the needful.

That said, Amsterdam could be well positioned to handle Brexit refugees, especially on the trading side – long history of on-exchange trading, pragmatic & transparent rules/regulations & a population that speaks English better than most of Great Britain!

Trading Asia Conference at Dubai

Dubai was experiencing the tail end of a sandstorm when we arrived. For those who have never experienced a sandstorm (or even the tail end of one), it is quite an experience. The city was overcast and it appeared to be raining, but the rain was sand! The wind was extremely strong, making it difficult to even cross the street. Gritty sand got into eyes, ears and mouths. 

But the crazy weather did not turn people away from our Trading Asia Symposium program. We had 160 people turn out for the event!

The symposium consisted of two-panel discussions with vendors & exchanges and a presentation by CME economist Eric Norland. 

 

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The first panel consisted of EUREX, ION, JPX & SGX, and the 2nd panel consisted of APEX, CME, DGCX, HKEX & TFEX.

Overall, it was great to see regional exchanges competing for volume toe to toe with the established exchanges. Their ability to understand and react to the needs of their client base is impressive, and it ultimately benefits all players because it creates arbitrage opportunities between contracts at the various exchanges.

 

Some examples –

  1. The Gold Online contract at TFEX. It was named Gold Online to take advantage of the spot gold contracts traders were already trading among themselves regionally.  The contract has only been trading since November 2018 and has amassed an average daily volume of ~8,000 contracts with ~10,000 contracts open interest.
  2. The Aluminum & Zinc contracts recently launched by DGCX were created to better serve DGCX’s Indian client base.
  3. APEX is going to launch a palm oil futures contract, creating an arbitrage opportunity with Boursa Malaysia.
  4. EUREX finally extended market hours to cover more of the Asian trading day and create more opportunities for traders.

 

Exchanges also have a perpetual interest in metals & FX products, with new products being planned and rolled out continuously, and new products in being specifically planned by APEX, HKEX, TFEX & DGCX.

JPX was keen to discuss their new customer program, which is going to de-couple exchange fee rebates from the FCM. This should open up clearing to more JPX participants.

Unfortunately, the TOCOM/JPX merger was officially announced just the day before the event, so no specific details were able to be shared. Please reach out to us for more information on this program if you are interested. 

 

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CFTC Kansas State Agricultural Commodities Conference

For the 2nd year in a row, Kansas State University and the CFTC teamed up to provide end users of agricultural derivatives products a forum to air their concerns & receive updates on issues directly from the exchanges & regulators. 

In his opening remarks, CFTC Chairman Giancarlo labeled the event ‘the Davos of farming’, a nickname which will hopefully stick around past his tenure as CFTC chairman. Chairman Giancarlo then proceeded to outline the difficulties facing the US agricultural space – trade tensions, weather, debt, variable business cases, & generational/technical shifts. He highlighted the resiliency of US agriculture in the face of these challenges. His point was that in the face of uncertainty, agriculture will be relying on the futures industry as much as ever to hedge their risk and exposure.

The other highlight of the conference was seeing a full slate of CFTC commissioners sitting on a panel together.  The audience gained an appreciation of the day to day work of the commission, their collaboration & the focus of each commissioner.

Although it was our first time back to the Kansas City area in a few years, the region continues to charm us city folks. Everyone treats you as though you are their neighbor, and the weather (at least initially) was better than Chicago!

Final Thoughts

Over the course of the past few trips we came to realize that while the contracts and exchanges are the same, the experience & needs of our clients vary widely. By highlighting those differences we hope to create an interesting story. The sales team at Phillip goes on the road quite a bit, and in future months we will try to bring those road experiences back home.