Securing the services of one of the leading global bankers to build up its derivatives business was a significant coup for Citi. FOW caught up with Kemp about his motivations for joining Citi, his plans for the firm and his outlook for the industry.
to Citi after almost 20 years at JP Morgan must have been a
tough decision. What motivated you to make the
CIti originally approached me in February 2010. I was surprised
at first but took the meeting to see what they were doing and
what they were looking for. They had a very compelling story.
Citi was emerging from the crisis with a different and very
clear strategy. They had an intense focus on their clients and
were keen to build out a more comprehensive trading offering
than they had in the past, which included exchange-traded
derivatives and OTC clearing.
It took many discussions but in October last year, I finally
did decide that I wanted to work with Citi. It was an exciting
opportunity to build a business in an area where Citi
admittedly had not lived up to its potential.
So where do you start with something like that? What
are your plans for the roll out of the business?
Citi has a great business in prime finance and great businesses
across the underlying assets. Obviously, for market
participants to thrive under the new regulatory regimes, they
will need a strong global clearing platform.
The building blocks of that platform grow out of listed
derivatives. I have set myself the task of bringing that
clearing vision to Citi’s global listed platform
while in parallel working to build a franchise for clients in
the OTC derivatives space. Quite clearly, many of the platforms
we are enhancing today in the listed space have direct
application to what we are doing in OTC.
With the new regulations that are expected to come into
force over the next 12-18 months, we are likely to see a
blurring of the traditional boundaries between OTC and exchange
traded derivatives. How do you see that playing out and what
will be the key implications for end users?
There is a very similar logic driving both OTC and listed
platforms. What will be important is the way clients look at
central clearing and the way they are going to be managing
their collateral and margin, as well as how they manage their
risk. We are working with them to optimize their use of capital
across all of these areas.
In a short time, we have made a number of changes to the
business. We have promoted outstanding talent from within Citi
and have recruited a number of excellent people from outside
the bank. Michel Planquart, regional head for EMEA, and Paul
Muoio, regional head for the Americas, are both longstanding
members of the Citi team who have recently joined the
management team. I am thrilled to be working with them. We
received the green light from senior management to make a
significant investment in global futures execution, led by
Antonio Reyes, who recently joined us From JP Morgan. Our new
platform will revolutionise what we’ll be able to
do for our clients trading listed markets worldwide.
What are your key concerns about the new
What concerns me most is the potential for inconsistencies
across jurisdictions, which could create opportunities for
regulatory arbitrage. If new regulations result in a situation
where clients trade in a specific jurisdiction solely in order
to optimize the impact of their regulatory exposure, then the
regulations have failed miserably.
How are you preparing for the new regulations?
We have a pretty good idea about what we are going to need to
do. Chris Perkins, who leads our global OTC clearing business,
has been driving this agenda very hard. We have spent a huge
amount of time educating ourselves and educating our clients.
In the OTC space, there is a race to the starting line. Clients
are at the stage where they are executing documentation and
putting the infrastructure in place that is required to connect
to their clearer of choice. They appreciate that at some point,
they will have to execute and they want to make sure
they’re prepared. No one wants to get into a
situation where they are unable to trade because they are not
connected to a clearing system. Some clients are beta testing
their systems to make sure they’re fully
functional. Some clients are already clearing.
We’re also helping clients understand the
developments on the regulatory front. We have an entire team
dedicated to interpreting the proposed regulatory changes, and
they spend a lot of time with our clients helping them
understand what the new rules mean for them.
Mifid I led to a proliferation of new trading
facilities in the form of MTFs and dark pools. We are beginning
to see new launches in derivatives of similar facilities. What
impact do you think the new launches will have in the
Some feel that Mifid had the opposite of its desired effect and
resulted in the atomisation of liquidity. In futures markets,
we’ve seen attempts over the years to create new
pools of liquidity pretty much fail. Futures market
participants have tended to trade where the liquidity already
exists. That may be changing.
It is interesting to see some of the new launches in the US. An
exchange such as NYPC, where Citi has just gone live with its
membership, provides the ability to clear Treasury futures
alongside the underlying cash, with margins calculated on a net
basis across the cash and futures. This is a very interesting
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