CMEs Duffy Says Derivatives Help Manage Risk
September 19, 2012
WASHINGTON, D.C.—Derivatives—oft vilified for their role in the market meltdown of 2008—are instead vital economic instruments that allow businesses of all kinds manage their risk, ensure more market stability and increase shareholder value, said Terrence A. Duffy, the chairman and president of CME Group, operator of the world’s largest derivatives marketplace.
“It is essential for businesses, from financial firms to farmers, to have the ability to manage their risk,” Duffy noted. “Any material or commodity that can fluctuate in price needs to be managed, and one way for businesses to do that is through the futures market.”
Duffy’s comments came during the keynote luncheon at the Financial Markets Quality conference Wednesday afternoon. The conference was held at Georgetown University’s McDonough School of Business, and presented by the university’s Center for Financial Markets and Policy.
Markets can be greatly disturbed by political uncertainty, an aggressive regulatory environment or physical world events such as weather or conflict, he said. However, what’s important in all markets—no matter their location or purpose—is the confidence that participants and consumers have in it.
“Market participants have a right to expect a marketplace that provides efficiency, and that will translate into integrity and that will boost confidence,” said Duffy. “And that integrity should be evident across all borders and in all markets, regardless of the regulatory regime at the time.”
Duffy said he realizes that at certain times in the past, confidence has been rattled in the U.S. securities and the futures markets, for reasons ranging from technological malfunctions to human errors and other events.
That is why it is important to safeguard the markets from these problems and ensure compliance among market participants across the board to the rules and practices that will keep the markets efficient, he added.
In this way, he said, all market participants are “policing the market.”
The push to encourage confidence in the markets is more important than ever now, Duffy said, because the markets are now a world-wide, around-the-clock, continually evolving phenomenon. Other market developments—such as liquidity pools that cater to high-speed trading and sometimes roil the markets—are likely here to stay, and should be embraced as a positive. “Some say speed kills, but I think speed is efficiency,” Duffy quipped.
What we’re dealing with in today’s mature market environment is a fast-moving entity that keeps pushing forward and spreading out through all countries and impacting all businesses that engage in risk management, he described. “You might be able to slow down, but you cannot sleep—the markets will keep moving without you,” Duffy laughed. “Although sometimes you do need to catch your breath.”