Moving to Citi after almost 20 years at JP Morgan must have been a tough decision. What motivated you to make the move?

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 regulations?

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 market?

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 development.

There are opportunities here. You are seeing a gravitational shift in terms of how the exchanges are operating. There is increasing competition among the exchange titans, which may lead to a redistribution of liquidity. That excites me. I think we will see exchanges make substantial investments to compete under the new regulatory environment. That competition is ultimately good for customers and the market.

The move of a huge number of instruments onto exchanges and the mandate to clear them is a huge change. The launch of a central order book for instruments that have been traded bilaterally is a massive change. We are just at the tip of the iceberg here and the major players are now trying to position themselves strategically to capture the next wave.



What are the implications of OTC clearing?

There are a number of models out there. Some players see OTC clearing as an add-on to an existing clearing business. However, the characteristics of the IRS or CDS markets are quite different to those in the ETD market.

There are those taking a siloed approach, where there is a clearing silo around credit, a clearing silo around IRS and a clearing silo around futures and options.

We believe there are a number of touch points across the listed and the OTC space. We ask what clients are looking for in a provider and whether we can use the same technology to drive the daily generation of margin reports, clearing reports, position reports etc in order to streamline our processes. Both markets require the payment of initial margin and variation margin. Clearly, the processes across the listed space and the OTC space are quite similar.

We are not saying that OTC clearing is ETD clearing wearing a different skin, it is a different animal. What we are telling our clients is that there are ways to push these two areas to bring them together. We do this via portfolio margining mechanisms, which are in an advanced stage of development in the bank.

What we are looking to do is leverage the commonality across the OTC and listed space and bring them together intelligently and look at how we can net down margins and use collateral as creatively and intelligently as possible. The goal is to enable clients to deploy their margins in the most effective way possible to cover their exposures on both the listed and the OTC side.

How do you see the interaction between banks and clearinghouses under the new regulatory regime?

Clearinghouses here in Europe and in North America are developing their approaches to provide more efficient margining across the OTC and ETD space. This is going to be an interesting space to watch in particular as the OTC footprint becomes more mainstream. Clearinghouses channel a large risk footprint and it is in their interests to look at ways to net down risk as efficiently as possible.

On the banking side, we can help with creative solutions to manage risk and exposures across a number of different products. A gap will naturally develop between what is offered by the clearinghouse model and what has traditionally been offered by the banks. The real differentiator will be how we respond to that gap and how we fill it.

The key will be our ability to provide intelligent clearing services, particularly around the margining and collateral management spaces. Anyone approaching this issue today who thinks they can continue to do it largely the same way they have for the past 20 years I believe will be in for a very rude awakening. Clients’ expectations have changed dramatically and they need their clearers to look at risk more holistically and optimise their use of collateral.

It seems that it is not just OTC and ETD that is converging, a lot of people are talking at the moment about cross-asset class trading and increasing expansion of global reach. How is Citi adapting to those trends?

That is one of the things that drew me to Citi. On the futures side, Citi is a member of over 80 exchanges worldwide and in terms of markets, we are virtually anywhere our clients want us to be. So for us it is about not just extending our market reach but knitting it together and extending it to our clients in the most intelligent way possible.

This is a revolution in terms of the perception of investment banking. It has traditionally be a very siloed business with each pipe (eg credit, interest rates etc) doing its own thing and then at the end of the year producing a P&L. Now, when I go to see a client I go with a colleague from credit or a colleague from FX, for example. We are responding to shifting demand from our clients, who want the most efficient mix of products possible.

How has the financial crisis affected the industry? What are the impacts on the business model that you have had to adapt to?

We are making significant investments in our in-business risk management infrastructure and a number of key hires I have made at Citi have been in that area. Demetria O’Sullivan recently joined us to spearhead our efforts in this regard in the futures space, for instance.

On the execution side, we haven’t seen a lot come down the pipes from regulators but that could change. Trade reporting is another area where we expect developments, in particular the reporting of trades to central depositories.

Futures have been centrally cleared for years but we are looking at investing heavily in archiving and reporting trade data for products that will be cleared under the new regimes.

What new markets are you looking to break into?

We will be pursuing new opportunities in emerging markets, a key theme across all of Citi’s businesses. We already operate on the ground in more than 100 countries and have been doing business in the emerging markets for more than 100 years, so we are convinced that we have an inherent advantage in this area.

We already have very successful businesses in India and Brazil. China is an area of growth for us, where Citi just signed an underwriting JV, which opens a world of opportunity to us.

As a futures brokers we are trying to achieve direct membership on the various exchanges in China. Today the only way to do that is via a joint venture. The Qualified Foreign Institutional Investor scheme is designed primarily to allow foreign entities to trade in China. We are interested in trading but also more fundamentally in clearing. That is something that is a key focal point in terms of what we are looking at developing strategically.

Again, Citi’s footprint was one of the keys that attracted me to the bank. In addition to China, we have great access to emerging economies throughout Asia. I can pick up the phone and speak to my colleague in Ho Chi Minh. For me that is huge.

Citi also has the leading franchise in sub-Saharan Africa, which is a very interesting market for us relative to commodities. It gives us great access to untapped markets.

What can we expect from Citi in the coming years?

We have our eyes fixed on being a top-chip player in both futures and clearing. Citi is investing heavily in this ambition and we are focused right to the top of the shop on making it a reality. We think we can have an impact over time for our clients and for our shareholders.

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