Interview with William J. Brodsky on G20 Summit in Mexico City

Author Name: 
William J. Brodsky
William Brodsky - CBOE.jpg

CBOE Holdings Chairman and CEO William J. Brodsky, the former chairman of WFE, was the only U.S. exchange representative invited to participate in a high-level Institute of International Finance conference preceding February’s G-20 Summit in Mexico City.

The conference, a forum for leading corporate and government representatives to discuss current G-20 issues, hosted over 250 leading public and private sector representatives, including several finance ministers, from around the globe.

Conference sessions included keynote addresses by high-level finance officials, and three special panels featured topics related to G20 issues:

  • Sustainable Growth and Job Creation in a Post-Crisis Global Economy
  • Financial Regulatory Reform and Systemic Stability
  • Strengthening Multilateralism: The G20 Agenda and Global Policy Coordination


Mr. Brodsky and six other panelists discussed various aspects of the second panel on financial regulatory reform. 

Jaime Caruana, General Manager for the Bank of International Settlements, served as panel moderator, and Guillermo Babatz, President of the Comision Nacional Bancaria y De Valores of Mexico, and Anton Silanov, Minister of Finance for the Ministry of Finance of the Russian Federation, presented special remarks. 

In addition to Brodsky, panel members included a diverse and informed group of executives – Steven Kandarian, Chairman, President & CEO of MetLife; Alfredo Saenz Abad, CEO and Second Vice Chairman of Grupo Santander; Luis Tellez-Kuenzler, Chairman of the Mexican Stock Exchange; and Zhang Hongli, Senior Executive Vice President for the Industrial & Commercial Bank of China.

Question: What was the panel’s focus, and what were your main points?

Brodsky: The panel on which I spoke addressed financial regulatory reform and systemic stability, a topic that continues to be one of the most pressing issues facing global financial markets today.

The panel format was a bit different that those I’ve typically been involved in. Each panelist was given a time slot to cover a particular aspect of the topic. I focused on issues about strengthening financial stability as related to OTC derivatives and the ongoing need for global regulatory coordination, including specific discussion on WFE’s opinion in these matters.

I emphasized that regulated, exchange-traded markets were the unsung heroes during the financial crisis – providing continuous, transparent pricing and the guarantees of counterparty clearing, even under stressful situations like Lehman Brothers’ bankruptcy.

In retrospect, exchange systems that worked so well during the financial crisis are the prototype for many of the reforms proposed in Dodd-Frank. Specifically, many OTC derivatives should be traded on exchanges, should be subject to central counterparty clearing or, absent central clearing, should be subject to higher margins.

I took the opportunity to recall the G-20’s past resolve to improve OTC markets through exchange trading and clearing of standardized products -- a commitment that now seems to be getting lost in the shuffle. I wanted my comments to serve as a reminder that the issues considered important a few years ago are just as important today, especially as we get closer to implementation of Dodd-Frank.

Finally, I outlined important lessons learned over the last few years, including how ad hoc regulatory decisions can be counterproductive if they are not coordinated. In the midst of the financial crisis, for instance, we saw varying forms of emergency bans on short selling imposed by different countries. Our markets are too interconnected for knee-jerk, unilateral decisions. 

Question: Did you have any surprises at the conferences?

Brodsky: I continue to be surprised by how quickly people forget what pushed our financial system to the brink. In 2009, the G-20 recognized the value of the exchange and clearing house environment and at two meetings formally recommended it as a solution to the OTC markets, with a proposed year-end 2012 implementation. I read the 2009 G-20 statement aloud during our panel session, and people later commented that they had completely forgotten G-20’s focus on the issue.  Despite those early pronouncements, we still have a long way to go.

Question: Any surprises for others?

Brodsky: I think people were pleased that I was so forthright about expressing how banks are resisting solutions to trade OTC on regulated exchanges. My main point was that after the financial crisis, the idea was for the bulk of OTC transactions – between 90 and 95 percent -- to be traded on exchanges. However, the mandate for standardizing OTC transactions hinges on a definition of what can be standardized, and that definition has not yet been determined.  Now the banks are challenging what OTC transactions can be standardized because it is more profitable for them to maintain the status quo and avoid exchange-traded markets all together. However, if banks are pushed – and they may be with Dodd-Frank – many OTC transactions could be standardized.  

Question: What was your biggest takeaway from the G-20 experience?

Brodsky: The takeaway is that the G20 is clearly focused on banking issues, but broad banking issues. As important as these issues may be, it is vitally important for the finance ministers to understand the role of exchanges and the interrelation of exchange markets and centralized clearing related to systemic risk.