STAYING ONE STEP AHEAD.
Stuart Williams, President of ICE Futures Europe explains how ICE is navigating the twists and turns of the markets.
Stuart Williams is the President of ICE Futures Europe, Intercontinental Exchange Inc.’s London-based, global futures and options exchange, which hosts a variety of energy, interest rate, equity derivative and commodity markets. Previously, Williams served as chief operating officer of ICE Futures Europe and before that as director of corporate development. Prior to that, he was at LIFFE and played a key role in the transition of LIFFE’s clearing and trading to ICE’s clearing and trading platforms, and the Exchange’s integration into ICE. Before joining LIFFE, Stuart spent 10 years consulting with Protiviti and Accenture, working on a broad range of initiatives with exchanges, clearing houses and other financial sector clients. Williams holds a bachelor of engineering degree from the University of Pretoria.
How have things changed over the past two years since you took over as president?
In policy terms, we’ve seen the introduction of one of the most ambitious and complex pieces of financial regulation in the form of MiFID II, benchmark reform initiatives including the transition of LIBOR to a waterfall methodology and the introduction of risk free rates by the official sector. Brexit contingency planning across the industry has also featured prominently, as have discussions between major jurisdictions regarding how local regulators work together to oversee a global industry without fragmenting those very same markets that provide the necessary risk management tools that power growth and innovation in the real economy.
Geopolitical themes driving markets have also changed with ongoing trade tensions between China and the US acting as a significant backdrop, alongside shifting expectations of a change in central bank monetary policy.
Energy transition is another key theme that has and will continue to develop – the global challenge of meeting increasing demand for energy while at the same time reducing carbon and sulphur emissions. The shale revolution in the US has moved the country into pole position as the world’s largest producer of oil and gas while the centre of gravity of demand continues to shift towards Asia.
How has ICE responded to this shifting landscape?
Uncertainty and the changing dynamics of the markets we serve, whether as a result of geopolitical risks, shifts in the supply-demand dynamic or changes in regulatory and public sector policy increase demand for new and innovative products, risk management and data. As such, we continue to develop new products and services across our network of 12 exchanges and 6 clearing houses and expand our data offering to provide the necessary tools for our customers to trade, invest and manage risk.
Key to all of this is staying close to our customers and understanding all of the issues that touch them. For example, recent changes in regulation have a big impact on how our customers do business and that influences how we develop our business to ensure we can continue to meet our customers’ needs in terms of products, risk management techniques, hedging tools and data. The most effective way to develop new products is to do it alongside your customers.
What type of products have been developed?
Benchmark reform remains one of the big themes in interest rate markets. Last year we launched one month and three month futures contracts based on the Secured Overnight Financing Rate (SOFR) following on from the successful launch of ICE one month and three-month SONIA futures in December 2017 and June 2018 respectively. Together, they provide a global offering to trade and hedge alternative risk-free rates alongside Euribor, Short Sterling, Euroswiss, Gilts and other interest rate benchmarks. Our range of interest rate futures and options contracts continues to grow as we continue to build on our multi-benchmark, multi-currency offering.
In energy, we launched a new physically delivered Permian WTI futures contract bringing a light sweet US crude to the global market, with a delivery point in Houston. In addition, we’ve developed a range of new low sulphur fuel oil contracts to support the transition to the International Maritime Organisations sulphur cap that comes into force in January 2020. This alongside the ongoing development of our global gas markets with new LNG hedging instruments.
How do you see the landscape changing as LIBOR is being phased out? How are the SONIA and SOFR contracts faring?
We have seen growing interest as an increasing range of financial institutions have started trading the products. As of the end of May, £2.95tn in notional volume had traded in our SONIA futures contracts since launch with £426bn of that in May 2019 equating to around 64% of SONIA futures volume. In our SOFR futures markets, we’ve seen $3.31tn in notional volume trade since launch with $697bn of that in May 2019 – around 32% of SOFR futures volume. It is still early days, though with significant development still needed in the alternative benchmark markets.
As for LIBOR itself, the Financial Conduct Authority (FCA) has made it clear that it wants the industry to plan for a transition away from LIBOR by the end of 2021.
What are your plans for your equity derivative products?
We continue to build on our leading MSCI and UK equity franchises. In April we launched eight new regional and country-specific MSCI index futures on ICE Futures US including MSCI World NTR and MSCI Europe NTR. At the same time, we launched 11 new MSCI EMU sector index futures on ICE Futures Europe to complement our existing offering covering the MSCI World Sectors and MSCI Europe Sectors. Across the MSCI complex, May 2019 month-end open interest stood at $2.4bn in notional with YTD volumes up 36% on last year. Our MSCI Emerging Market Index Futures market, which has seen average daily volume increase from 1,000 lots to over 175,000 lots in 10 years, currently has open interest of over 1.28m contracts ($65bn in notional). The US/China trade tensions, coupled with the increased weighting of Chinese stocks in the MSCI Emerging Market Index, has seen market participants turn to ICE MSCI Index futures to manage their Emerging Markets exposure. It is an exciting market for us.
We also offer futures and options on various FTSE Indices, namely the FTSE 100 Index, FTSE 250 Index and the FTSE Dividend Indices. YTD ADV in the FTSE 250 Index Futures and the FTSE Dividend Index futures were up 34% and 37% respectively. Together with the FTSE Index products, the UK single stock future and options products and the Sterling rates products, ICE offers the most comprehensive suite of products to manage UK risk exposure.
In terms of product development, we are in the process of improving our FTSE 250 Index futures and options contracts.
We are also looking at the opportunities in the ETF space because of the increased flows in these and other passive products. We are developing an ETF hub in fixed income to strengthen and simplify the existing ETF creation and redemption process for fixed income ETFs. The platform will utilise continuous evaluated bond prices from ICE Data Services, and connect to BondPoint, our electronic corporate bond trading platform, and TMC Bonds, the municipal bond trading platform we acquired last year, as well as to third party venues. ETF Hub leverages expertise from across our company and provides a unique solution to a range of challenges faced by the ETF industry.
What challenges do you foresee – political like Brexit but also liquidity, market infrastructure, etc?
The ever-increasing cost and complexity of regulation as well as the detail and prescriptiveness of regulatory policies that go beyond the remit to ensure the safety and efficacy of the market. They all increase the risk of market fragmentation which will ultimately weaken the efficacy of the market and stifle the necessary investment and innovation required going forward.
Stock exchanges are now described as technology companies. How has ICE changed in that regard and what technology is driving the company forward?
ICE started out in 2000 with the idea of transforming energy markets by creating an electronic marketplace that removed barriers and drove transparency and access. In 2005, ICE transformed ICE Futures Europe (previously the IPE) into the first fully electronic energy futures exchange, closing the trading floor. Technology and innovation have always been a core part of our DNA. When you look at all the acquisitions we have done over time, it has been about positioning ourselves at the forefront of the analogue to digital conversion in a range of different markets.
However, there is still a long way to go and for us we will continue to build upon what we see as the virtuous circle of execution, clearing and data. Data will play a key part, whether as an important input into trading decisions, being used to measure best execution, for compliance with regulations or as part of the portfolio manager’s investment management processes. To that end, we will continue to develop content offered via the ICE Global Network which already offers a broad range of proprietary and third-party data. In a world where cyber security is front and centre, ICE Global Network provides a very secure and resilient access route to the global market community.
Where are the opportunities?
We are always looking for more opportunities. The analog to digital conversion is not done yet. Data is playing a big part, as is the opportunity in digitising the US mortgage space which we have begun with the acquisitions of MERS and Simplifile. On the exchange side, there will be a constant evolution of new products and services as the market continues to evolve and innovate.
©Best Execution 2019