Good morning and thank you for joining us in Chicago for Expo. We have a great event in store for you!
And for those in the audience tracking my remarks on Polymarket and Kalshi, let’s get this over with: Contango, Pat Kenny, 6-7 and Hoosiers.
Now that’s done, there’s something special about being back in this City — not just because it’s where our markets began. More importantly, it’s the home of where our markets are going.
This is a town of inventors, explorers, and creators. Chicago is the home of Walt Disney, Milton Friedman, Frank Lloyd Wright and Ray Kroc.
Chicago is where atomic physics began (and almost ended), and where skyscrapers first reached the clouds. Chicago is also a town of extremes—extreme weather, extreme politics and extreme ambition that sometimes leads to unpredictable outcomes.
It’s no wonder that from this incubator of innovation, grit and volatility, our markets began nearly 175 years ago. And since that time, our industry has shown tremendous resilience by evolving with the times and not fearing change. It took courage and vision to move from ag products to financials and from pit trading to electronic, but we overcame resistance and we did it.
Today we face similar tectonic shifts in our markets that raise some fundamental issues. But we need to have the courage to take on these difficult questions, like:
The answers are not easy. But they lie within our grasp if we work together as an industry. And if we do, we will make our markets stronger and more efficient for the next generation.
Whenever faced with complex problems, it’s helpful to go back to first principles of what makes our markets strong.
We instinctually know these goals. They include fairness, transparency, legal clarity, strong risk management and robust customer protections. If we use these five objectives as guideposts, we can turn these challenges into positive force multipliers for our industry.
Unlocking innovation through tokenized collateralOne of these force multipliers is the promise of tokenizing collateral as we move to 24/7 trading. We are approaching a time when digital money can move as fast as data. And we need to recognize and embrace it.
Crypto markets are already there. They are always open, allowing retail customers access to these products 24/7. But this only works because they have the liquidity at all hours of the day to enable buyers and sellers to trade at a fair price.
Not all products have the liquidity to justify around the clock trading. It’s like another marketplace that’s open 24 hours a day — Seven Eleven. Yes, I might feel comfortable getting a slushie at 3 in the morning, but I wouldn’t want that hot dog that’s been on the rollers for hours. Liquidity matters in convenience stores and markets alike.
The movement to 24/7 trading also challenges the risk management of markets, which relies on customer margin collections and banking payment rails to settle trades.
Without the ability to run settlement cycles overnight or on weekends, a build-up of market risk occurs without the ability to collect from customers.
One potential solution is the tokenization of assets on blockchain. It can help derisk markets in real time without relying on the public payment rails.
Derivatives markets utilize central clearing to reduce risk. They do this through daily margin calls of cash and bonds.
We believe the settlement process for collateral would become much more efficient if done on blockchain. That’s why FIA took a deep dive on tokenization earlier this year and published a
white paper on it.
One promising form of tokenized assets is stablecoins. As most of you know, Congress passed the GENIUS Act earlier this year, which establishes a regulatory framework for stablecoins. Clearinghouses are beginning to discuss using US Dollar stablecoins as acceptable margin for backing trades.
Not surprisingly, the devil is in the details, including how fast these products can be liquidated in a default and how they will be treated in bankruptcy.
We must dive into the details before we adopt these digital products wholesale. That said, we remain excited by the potential game-changing efficiencies brought by these tokenized assets.
I’m thrilled we have Jeremy Allaire, co-founder and CEO of Circle, up next to walk us through his vision for this new product.
Unlocking innovation in prediction marketsA second force multiplier is prediction markets. I have been fascinated by these markets since my time as Acting CFTC Chair in 2008, when the agency issued a Request for Information on the topic.
Back then, academics at the University of Iowa, under a limited no-action exemption, operated a low-dollar event market to see if event contracts were a better predictor of elections than polling. The answer was yes. And it still is.
Fast forward to today, these markets have caught a wave of excitement from a new generation of traders and gamers. Even Wall Street trading desks are using event contracts for market indicators on inflation, the economy, and government actions.
But, as these markets move away from pure economic events to speculative activity and sporting events, policymakers and market participants are seeking legal clarity around what is permissible.
We also need a frank discussion on the risk profile of these contracts and the customer protections afforded to consumers. Even the CFTC itself is struggling to keep pace with the hundreds of contracts being submitted monthly for their review.
These are not unsolvable questions, but we need to roll up our sleeves, with market participants and policymakers alike, to find the answers. These markets are innovative and here to stay, and it’s imperative we build a solid regulatory framework that allows for their safe growth.
Unlocking innovation with artificial intelligenceThe final force multiplier I see is artificial intelligence. AI’s potential for our world and industry is extraordinary, but it’s also fraught with downside risk.
The amount of investment in AI is astounding, with private equity investing over $100 billion in AI last year — that's one-third of all VC money.
Thirty-seven percent of the S&P 500’s market cap is comprised of the Magnificent Seven Tech stocks that are driving the AI revolution.
We are uncertain whether we are in the midst of a massive bubble or a once-in-a-generation productivity revolution.
The truth is likely both.
But what can we do? It can feel overwhelming.
And no, I’m not going to ask ChatGPT about it.
The answer is to focus on the pragmatic and achievable, work together as an industry and simply dive-in and lead.
AI is not new to our industry. Our trading community has used automated trading and machine learning for many years.
Early on, our industry recognized the risks of automated trading. We published
best practices on the subject in 2015, which we updated last year.
These recommendations include the use of kill switches and algorithm testing, among various other controls.
FIA has also been a thought leader on the proper regulatory approach to AI. We joined CME, ICE and PTG in responding to a CFTC request on AI last year. We do not believe that regulating AI directly is the right approach.
Rather, we recommended a technology neutral path that tailors its focus on outcomes and use cases.
FIA is also working with international regulators to develop an outcomes-based approach that utilizes existing rules before considering other regulations on AI.
If we can get the regulatory framework right, we see massive potential for this technology.
For example, AI is helping market regulators scour millions of trades to identify unusual trading patterns. AI-driven smart contracts are automating derivatives trades and eliminating back-office paper-pushing. AI risk systems anticipate when losses need to trigger credit events, margin calls and liquidations.
We are only seeing the tip of the iceberg.
Again, it may feel overwhelming, but we must return to our five principles of sound markets to guide us.
If AI can help us to reach these goals, our industry will be in a better place. But the key is working together. Our greatest breakthroughs have come when we’ve worked as a united industry.
If we unlock innovation in a responsible way, we won’t just improve our markets, we will unlock their force-multiplying value for the benefit of our customers and the global economy.
I’m confident that this industry, and specifically, this city, will be at the center of this
