Road Trip to IDX: ICE's Rhodes Discusses Innovation Amid Regulatory Divergence

Day Two of International Derivatives Expo kicks off with a conversation featuring Chris Rhodes, President of ICE Futures Europe. Fresh off his appearance on the Exchange Leaders panel, Rhodes joins the show to outline how ICE Futures Europe continues to foster innovation amid a landscape of regulatory divergence. Rhodes explains how ICE leverages its global footprint to deliver products that meet regulatory standards across various jurisdictions. Rhodes also shares his views on how energy commodites and weather derivatives continue to evolve and present new market opportunities. 

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Transcript

(Note: This transcript was created using AI. It has not been edited verbatim.)

Sean McMahon  0:00  
Sean, Hello everyone, and welcome to the Modern Money Smart pod. I'm your host, Sean McMahon, and today is day two of the International derivatives Expo in London. We're here gathering insights from some of the leading minds in the financial services industry, and joining me right now is Chris Rhodes, the president of ICE Futures Europe. Chris, how you doing today?

Chris Rhodes  0:27  
Well, thank you, and thanks for having me on this podcast. It's great.

Sean McMahon  0:31  
It's great to have you on you just wrapped up your appearance on the exchange leaders panel, which, as anyone who's ever been to a FIA event knows, that's one of the highlights on the agenda at every gathering. So what were some of the key takeaways from that for you? 

Chris Rhodes  0:46  
Well, I think the there was a bit of a sort of a UK versus European split in terms of perception of what's going on at the moment, and then with the the sort of the complexity of what's going on in the US, in terms of potential divergence, I think from a UK point of view, and the UK really serves as a global market in financial products, in commodity products. It's really about trying to create a regulatory environment that can create growth and create innovation and almost create a safe space for that. And we're seeing a lot of evidence of that coming through on the secondary competitors. Objective from the FCA, that's been a real positive, because now there can be a conversation between the regulated market and the regulator about what's the right thing for market integrity, what's the right thing for innovation. And so I think that's a real positive. That isn't the case in the EU, it's more prescriptive. And as Stefan said, it's bottom up in terms of style. So I think principles led regulation in the UK, trying to foster growth in what is the world's leading commodity market place, is really the theme that came through for me today. 

Sean McMahon  1:46  
Yeah, and there's also some comments from yourself and some of the other panelists about the regulatory divergence going on with the US and the UK and EU. So how are you and the team at ICE Futures navigating that?

Chris Rhodes  1:58  
Well, really fortunate for ice. We're a global company, and we've always been a global company. So headquartered in the US, we're very much in keeping with what's going on in the US regulatory space. Our largest exchange and clearing house is in London. And so really, our market is about serving international It's about serving Asia. It's about serving North America. So really, I think in the US, it's about a perception of deregulation as opposed to actual deregulation. At the moment, of course, there'll be some bills coming through shortly, particularly around digital assets, that will change that dimension. But from a wholesale markets, commodities and financial markets perspective, right now, the UK feels like a really solid place to serve that international audience. And actually, I think there's a lot of alignment between the UK and the US actually on the way they see markets. And so I think that's a real positive to the way we position our business. But as you know, we have first thing exchanges, six clearing houses, so we can be international and local at the same time because of that construct, and I think that sets us apart from our competition.

Sean McMahon  3:05  
And earlier, you mentioned the dialog between market participants and the FCA. So how important is that?

Chris Rhodes  3:12  
Well, we all have a responsibility to create the best markets we can, and the FCA want that, the Treasury want that. The government want that. That's why financial services is integral to the industrial strategy of the country. And so, you know, I think that collaboration, particularly in times where markets are more volatile, is absolutely critical. I go back to the energy crisis in 22 that relationship and engagement was was key in terms of giving us the space to run the best market we can. I think in recent times, the commodity markets work around reform has really devolved power into the regulated market, and that gives us the ability to do what's right for the market whilst maintaining exceptionally high standards in terms of integrity. 

Sean McMahon  3:57  
Alright. And you had some other comments during the exchange leaders panel about innovation, and you mentioned how Stefan is like the US innovates Europe regulates as a global entity, that ice is. So how do you as an organization, foster that innovation where it's, let's just say, more encouraged, perhaps, and then navigate the jurisdictions where there's a little more, not heavy handed, but just a little more regulation that's kind of prescriptive. 

Chris Rhodes 4:22  
Well, I think the starting point of any innovation cycle is, what's the problem you're trying to solve? Right? What is it that the customer problem is in great detail with real precision around what are the elements that that customer needs? And then you start to build up that sort of innovation cycle where you're thinking about what product might solve that problem, and you have to start there. You can't start at the regulator. You can't start I'm going to create something because of regulation. You have to create something because of the customer problem. And so the way we try to benefit from that, at eyes being a global company, is we have the diffusion of everyone across the globe trying to come. With ideas to solve problems, and then we we boil that down and find the right wrapper from a derivative perspective, and the right locations offer that to customers. And then it's about bringing stakeholders along. And we've built a very transparent relationship with the FCA. They come in on an annual basis. I present strategy to them. I present a roadmap. I'd say, what's going well, what's not going so great, and we have that sort of open dialog so that they are, they're in, they're in the car with me. And I've really seen that since the Edinburgh reforms and the and the competitive objective. And so I think we're on, we're on the right path. I think we could speed up in the UK, go further and make sure that the next great, big innovation that, you know, rocks the world of derivatives, happens in the UK.

Sean McMahon  5:43  
And then, you know, bringing things back to just, you know, obviously, there's a lot of people here in London at this event. What are you hearing? Some of the hot topics, or any, any surprises, perhaps, that have popped up in conversations that you're willing to share?

Chris Rhodes  5:54  
Surprises. I continue to be intrigued by the fascination with 24/7 trading and the role of retail. You know, clearly there's a role for the retail participants to access markets in the same way the institutional clients access but I think that, I think people have over estimated the size of that opportunity and and I think therefore, when thinking about best in class infrastructure, when thinking about how to structure a market, I think we need to be careful that all of the operational processes work properly around the clock, have sufficient time for members and clearer members to make payments and put collateral in the right place In order to support integrity. So it's not I'm negative on that, but I've been surprised by the level of interest in that topic, because I spent 13 and a half years as a trader, and I don't want to work at the weekend. I need that time off.

Sean McMahon  6:53  
Well, you know, you can't say we're not bringing divergent viewpoints, because all my guests yesterday were on the other side of that. They're quite excited about the the retail side, 24/7, trading and everything so, but that's why everyone comes together at a place like this. Absolutely. So what else are you seeing out in the marketplace? Anything that you and the team at ICE Futures Europe are working on, or offerings that might be in the pipeline?

Chris Rhodes  7:12  
Yeah. So we continue to build on our energy portfolio. You know, with a market leader in crude oil and refined products, with a market leader in global gas, we're the only exchange in the world to offer us Europe and Asian gas. We're building our global power portfolio to mimic that positioning. So I think further innovation there and new products. I think the role of weather in terms of climatic variables and the way that impacts the way utility firms think about managing risks. I think there's an opportunity of weather for, you know, for for new products to come through. On the financial side, we're seeing a lot of growth in our central bank dated futures products, so ECB, dated Esther, MPC dated Sonia. These are what, classically would be a swap in an OTC format. We've we've created a futures wrapper. We provide that on a central limit order book, centralized clearing, margin efficiency and sort of a really diverse set of liquidity. I think that's really compelling. And I think that's gonna, that's gonna be a key focus for us as we move forward.

Sean McMahon  8:11  
That sounds like some exciting stuff, especially the weather. It seems like a lot of a lot of places, you know, the services that provide that data are, I don't know, maybe become a little more siloed, and so really, just the information about, you know, what's going to happen, the weather report, yeah, might become more of a fundamental for markets. Well, listen, Chris, I know it's busy, and I really appreciate you taking time you're in your schedule to talk with us today. 

Chris Rhodes

Thanks for having me. 

Sean McMahon

Well, that's it for right now. Be sure to follow this podcast feed for more insights from the International Derivatives Expo brought to you by the Futures Industry Association.