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January 12, 2012
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Looking Ahead to 2012
A conversation with FIA President John Damgard
  
FIA President John Damgard Source: FIA
The past year was full of big news and events for the futures and options industry and the next year promises to be full of more major headlines. SmartBrief asked FIA President John Damgard to share his insight on industry developments, regulatory reform and other changes coming in 2012.

You have just announced the appointment of Walt Lukken as the FIA's new president and CEO. Why the change in leadership?

After nearly 30 years at the head of the FIA, it's about time for me to hand over the reins to someone new. I think Walt's a great choice. His many years in government will be a tremendous asset in dealing with the structural reforms mandated by Dodd-Frank and similar laws around the world, and his experience in running a clearinghouse will be particularly useful as the FIA works with regulators in the over-the-counter market's transition to clearing. I've known him for a long time and I'm looking forward to welcoming him to the association in time for our annual meeting in Boca Raton in March.

What do you see as the top issue for the FIA in 2012?

MF Global is certainly first and foremost in our minds. While there certainly are many other issues ahead -- position limits, transaction taxes, mandatory OTC clearing, to name a few -- none of them are as urgent as the collapse of MF Global, and particularly the unprecedented breach in the segregation of customer funds. The fact that customers still do not have 100% of their funds has dealt a severe blow to confidence in our system of customer protections, and item number one on our agenda is to find a way to restore that confidence.

We still don't know what exactly went wrong, but once all the facts emerge we expect to offer specific suggestions on what should be done to prevent this type of situation from ever happening again. I have no doubt that the Commodity Futures Trading Commission and the self-regulatory organizations will also come forward with some concrete proposals in the not-too-distant future. Congress will examine those proposals very closely and possibly come up with its own proposals, and we as an industry will need to step up and participate constructively in the dialogue.

What about Dodd-Frank rule making? What are your expectations in that area?

It's become obvious to everyone that the regulatory reforms in Dodd-Frank are considerably more complicated than Congress realized. The regulators have truly put in best efforts to meet the deadlines in the statute, and I don't think that we should blame them if the deadlines are not met. If anything, the extra time has made it possible for all of us to think through the implications. We are still well ahead of the rest of the world in meeting the deadlines set by the Group of 20 leaders.

One of the biggest emerging issues in 2011 will be the cost of compliance with Dodd-Frank. I think everyone in the derivatives industry is struggling to understand the application of the rules and the cost of compliance. For example, transparency as a general principle is a very good thing for markets, but the rules that are being put in place to meet that goal are very, very complicated. Look at what happened with the large swap trader reporting rules. Even after the rules were finalized, there were many questions on how to implement the reporting requirements. The CFTC didn't put out the final guidance on how to comply until a week before the first reports had to be submitted.

We have been working with the CFTC to ease the burden on the industry and I am pleased to see that the folks over there are listening to what we have to say. But as a general matter, it's becoming clear that the ultimate cost of compliance with these and other rules will be much higher than anyone would have expected when we started down this road. And the likely consequence, which I don't think anyone intended, is that the number of firms able to provide clearing services for derivatives will get smaller, not larger. That's not good for the industry or for the public, and I hope the regulators recognize that as they finalize the reforms here and abroad.

You sound pretty gloomy about the future. Is there anything positive on the horizon?

You're right, there is a lot weighing down on us. But I very strongly believe that there are solid reasons to be positive about the future despite these challenges. I've been in Washington a long time and I've seen the regulatory pendulum swing back and forth many times. Nobody ever gets it 100% right on the first try, and I fully expect Congress to take a good hard look at Dodd-Frank and rework some of the sections that are proving to be particularly troublesome. That may take several years to play out, but the process is already starting and I expect the FIA to play an important role in that.

Furthermore, I don't think the core function and purpose of this industry will be any less necessary in the future than it is today. If anything, the need for protection against adverse price movements is greater than ever. We live in uncertain times, and this business at its core is all about providing people with certainty about the prices they pay for the products they consume and the revenues they receive for the products they sell. So long as we keep sight of that goal, so long as we keep our costs down and keep up our competitive edge, the demand for our services is bound to strengthen.
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What YOU expect in 2012
Do you see the number of clearing members increasing or decreasing under the new Dodd-Frank regulatory requirements?
54%   Increasing
46%   Decreasing
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In what area will your firm direct the biggest increase in resources?
34%   Risk Management
34%   Compliance
16%   Business Development
16%   Technology
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Will your firm be putting more resources toward building business in Asian markets?
84%   Yes
16%   No
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Does having the U.S. be first in finalizing financial reforms benefit your firm?
55%   No
45%   Yes
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Upcoming Events
Register now to attend these critical industry events in 2012
Boca 2012 -- 37th Annual International Futures Industry Conference
March 13 to 16
Boca Raton Resort & Club, Boca Raton, Fla.

L&C 2012 -- 34th Annual Law & Compliance Division Conference on the Regulation of Futures, Derivatives and OTC Products
May 9 to 11
Baltimore

NY Expo
May 17
New York Marriott Marquis

IDX 2012: 5th Annual FIA/FOA International Derivatives Expo
June 26 and 27
The Brewery, London

7th Annual FIA and OIC New York Equity Options Conference
Sept. 12 and 13
New York Marriott Marquis

FIA/IFM Turkish Derivatives Conference
Oct. 1 and 2
Swissôtel | The Bosphorus, Istanbul

FIA Expo 2012 -- 27th Annual Futures & Options Expo
Oct. 30 to Nov. 1
Hilton Chicago

8th Annual FIA Asia Derivatives Conference
Nov. 28 to 30
St. Regis Singapore
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Product announcements appearing in SmartBrief are paid advertisements and do not reflect actual FIA endorsements. The news reported in SmartBrief does not necessarily reflect the official position of FIA.

New era begins at FIA
Lukken to succeed Damgard as president of FIA
The Futures Industry Association has announced the appointment of Walter Lukken, an industry executive with many years of experience in government, as president and chief executive. He will succeed John Damgard, who has been the head of the association since 1982, in time for the annual meeting in March. "We are delighted to announce this appointment. Walt is a tremendously talented individual with extraordinary experience and industry knowledge, and we are very fortunate to have someone of his caliber to lead the FIA at this important moment in its history," said Michael Dawley, chairman of the FIA and co-head of futures and derivatives clearing services at Goldman Sachs. Read the full FIA announcement.
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The Top Stories of 2011

These are the most clicked and shared stories in FIA SmartBrief in the past year.

CFTC finalizes rules governing swaps clearing
MarketWatch (10/18), Bloomberg (10/18), Reuters (10/18)
Programmer is charged with stealing CME trade secrets
Reuters (7/2), Lake County News-Sun (Gurnee, Ill.) (7/4)
UBS detected signs of unauthorized trading but failed to act
The Telegraph (London) (10/5), The Guardian (London) (10/5), The Wall Street Journal (10/6)
Analysis: MF Global drama pivots around Corzine and Duffy
Reuters (12/18)
Obama disappoints EU leaders by opposing transaction tax
The Wall Street Journal/Real Time Economics blog (11/3)
CME offers cross-margining between futures products
Reuters (2/28)
Transaction tax would hurt financial sector and cut jobs, report says
The Hill/On The Money blog (12/12)
MF Global's downfall is another blow to financial sector
Financial Times (tiered subscription model) (11/4)
Dodd-Frank is seen as a boon to derivatives trading platforms
The New York Times (tiered subscription model)/DealBook blog (8/29)
CME offers to help MF Global customers recover their money
Financial Times (tiered subscription model) (11/11), Chicago Tribune (11/12), The Wall Street Journal (11/12), Reuters (11/12)
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The Most Popular SmartQuotes of 2011

These are the most clicked and shared SmartQuotes in FIA SmartBrief in the past year.

When a man finds no peace within himself, it is useless to seek it elsewhere.
-- Francois de La Rochefoucauld,
French writer
If I'm going to do something, I do it spectacularly or I don't do it at all.
-- Prince Al-Waleed Bin Talal,
Saudi Arabian businessman and investor
The important work of moving the world forward does not wait to be done by perfect men.
-- George Eliot,
British writer
No one can possibly achieve any real and lasting success or get rich in business by being a conformist.
-- J. Paul Getty,
American industrialist
An expert is a man who has made all the mistakes which can be made in a very narrow field.
-- Niels Bohr,
Danish physicist
Anger makes dull men witty, but it keeps them poor.
-- Francis Bacon,
British philosopher and statesman
You'll never plow a field by turning it over in your mind.
-- Irish proverb
A failure is not always a mistake, it may simply be the best one can do under the circumstances. The real mistake is to stop trying.
-- B.F. Skinner,
American psychologist, inventor and author
Deliberation is the work of many men. Action, of one alone.
-- Charles de Gaulle,
French general and statesman
Has fortune dealt you some bad cards. Then let wisdom make you a good gamester.
-- Francis Quarles,
British poet

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