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Gay Huey Evans ‘The LME is a unique market'

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When Gay Huey Evans attended her first London Metal Exchange dinner in 1999, she was head of markets at former UK regulator the Financial Services Authority (FSA). Some 20 years later she was there as LME chair elect, the first woman appointed to the role.

“As a regulator I would send my markets people and occasionally come to learn a little bit more about commodities. I remember sitting in the back row of an event during LME Week just listening and fascinated,” she told Metal Market Magazine. “The regulator was always invited to the LME dinner, and as the FSA head of markets, I would attend.”

Her first LME dinner “was a sea of men,” something she had become used to since starting her career. Huey Evans was the only woman on the top table the first year; there were six women out of 38 people at her table at the dinner last October.

Huey Evans’ appointment to the exchange follows the retirement of Sir Brian Bender in December, after his almost a decade in the role, and a more than 30-year career for Huey Evans in financial services, international capital markets and regulation.

Pennsylvania, USA-born Huey Evans started her working life at investment bank and brokerage firm PaineWebber & Co, although she had initially planned a career in medicine. “I started as pre-med and took organic chemistry the first semester, got my first C in my entire life, and thought, ‘I’m not sure I’m going to make it into med school.’ You could have been talking to a surgeon right now!” she laughed.

“My father said, ‘whatever you do, do it well.’ I had no idea really what I wanted to do, as long as it was different and interesting,” she added. She decided to take international economics, which she found easy by comparison.

Graduating from Bucknell University in Lewisburg, Pennsylvania, with a BA in economics, Huey Evans moved, age 22, to New York and started work at PaineWebber. She was one of two women on the trading floor; her female colleague did corporate sales. It was the beginning of the fixed income market, when financial futures contracts were just being introduced.

“People really didn’t know how to trade interest rate futures against cash at that time. It was fascinating. Then PaineWebber wanted to set up a money markets department; that’s how I started,” she recalled.

Back then, the financial markets were “a wild world,” she said, but “you didn’t think about it because you just loved it. It was a job that was interesting, not a career. New York in the 1970s was a fun place to be, particularly if you were young. You played and worked hard,” she added.

Early career

From PaineWebber she moved to Bankers Trust, where she worked in the capital markets division.

“That was the new world – derivatives. Nobody knew what a swap or an option was. It was an exciting but challenging place – Bankers Trust didn’t create the swap but I don’t think they get enough credit for the ingenuity and intellectual rigor it gave to growing that business and trying to define the risks behind it,” Huey Evans said.

Covering mostly US financial institutions on the US east coast as well as foreign, in particular Japanese, institutions, Huey Evans says she “still didn’t think of it as a career. It was a job. At that time, I did not think I was going to work in banking my entire life.”

While she was trading FX and currency derivatives at Bankers Trust, the bank developed commodity derivatives. “We set up Enron’s venture into commodities, initially as a joint venture and then Enron took the whole project,” she added.

In 1985, Huey Evans was offered an internal transfer with Bankers Trust to a new role in London, but turned it down because her former husband could not get relocated. She continued in New York until 1990, when Bankers Trust lost a portion of its team to Credit Suisse Financial Products, and another London opportunity reared its head.

Having raised her hand to run the company’s London swaps or options desk, Huey Evans’ boss initially turned her down because he questioned her ability to move her four-year-old daughter from New York.

“My husband wasn’t working at that point and was happy to be relocated, and I was happy to move my daughter to the UK. You couldn’t lose! It took six months for the company to grasp that I was serious,” she said.

It was in London that Huey Evans recognized how much she enjoyed working. “It took a long time to get there, and when I did, I wanted to do the right job but definitely to also keep working. Then I realized I probably had a career,” she added.

Huey Evans had been on the board of the International Swaps and Derivatives Association (ISDA), a trade association for derivatives dealers and other market participants, since 1990. She was asked to co-chair it, but ended up becoming its chair in 1994.

It was a baptism of fire: shortly afterwards, her former employer Bankers Trust was sued by Procter & Gamble after the consumer goods multinational reported large losses from interest rate derivatives transactions. The dispute was settled between the two companies before it was due for trial.

“My appointment was challenged by some as my former company, Bankers Trust, was ‘problematic’ [in their view] – but Bankers Trust was only one of several organizations that were involved in high-profile derivatives-related losses,” she said.

ISDA addressed, and continues to address, problems – either through codes of conduct, improved documentation, reducing or eliminating legal risks, developing protection against counterparty bankruptcy, maintaining good industry relationships with regulators, and responding to regulatory and legislative concerns, including testifying in Washington, she added.

It was what Huey Evans describes as a “growing-up period” in her life. “I learned much about different stakeholders and people’s interests, including politicians and lawyers,” she reflected.

She spent time during that period trying to explain why positions should be netted down, something she believes was “the right thing at the time because the size and magnitude of our business grew from there.”

“In the early 1990s, the outstanding notional amount of OTC derivatives was almost $3.5 trillion; when I finished in 1998 it was estimated to be close to $60 trillion and now it’s over $500 trillion. This explosion of OTC derivatives is rarely mirrored in other industries,” she said.

Path to the LME

Then in 1998, Huey Evans was approached by Howard Davies, then chairman of the newly established FSA, to join him at the regulator.

“I said, ‘I’m not a regulator, I’m a market practitioner. I work with clients, I manage risks and find solutions.’ But Howard is such a clever man, and I thought, to work with him would be a great opportunity, so why not?” she added.

She was tasked with setting up the FSA markets division, where she stayed until 2005. Its work involved regulation of markets, including exchanges, and provided her with an ongoing involvement with the LME. “The first thing I learned about the LME was the Hamanaka crisis, which had happened in 1996 but was still being cleaned up,” Huey Evans said, referring to a metal trading scandal involving the chief copper trader of Japanese trading house Sumitomo.

“Getting to know how people can get stuck in positions and don’t want to recognize losses is an age-old problem that happens over and over again in all markets. Why there were no risk systems around it to monitor it, I have no idea. It just tells you that even then, commodities were in a different world,” she added.

She was also involved in the discussions related to regulation in Europe, including the Markets in Financial Instruments Directive of 2004, a European Union law that provides harmonized regulation for investment services across the 31 member states of the European Economic Area. Huey Evans also attended International Organization of Securities Commissions (IOSCO) meetings as a substitute for Davies.

“The FSA role was broad, which I enjoyed. I learned so much about regulation, government and myself,” she said. During her tenure the FSA created the Market Abuse Regime, which preceded the EU Market Abuse Directive and was designed to prevent, detect and punish market abuse. Huey Evans believes that while most people want to do the right thing, there are always some who are motivated otherwise, and “those are the ones that should be locked up, fined or banned.”

“I’m a principles-based person rather than a rules-based person. A lot of people need rules, but you can get around rules, especially by hiring a very good lawyer,” she said. “If you’re principles-based, you are motivated to do the right thing at all times. I know rules are necessary to give people structure, but a rule compels you to do what someone else has deemed right,” she added.

While at the FSA, Huey Evans also learned a lot about the regulation and operational aspects of exchanges and achieving fair and accurate price formation. “Markets create prices by establishing an equilibrium between supply and demand and these prices do impact the public. So you don’t want somebody manipulating the market by creating an artificial or false representation of what that reference price will be,” she said.

After leaving the FSA in 2005, Huey Evans moved to Citi for three years, where she had roles including head of governance, Citi Alternative Investments EMEA. In 2008, she became Barclays Capital vice chair of investment banking and investment management, and was responsible for Barclays’ relationships with sovereign funds globally.

The approach for the LME role came through a headhunter. Huey Evans had met Laura Cha, chair of the LME’s owner, Hong Kong Exchanges & Clearing (HKEX), when they were both regulators two decades before, and sat on the Financial Reporting Council with outgoing chairman Sir Brian Bender, although the latter did not play a part in her selection.

Huey Evans had turned down several opportunities before the LME job emerged because the roles did not entice her. But attracted by the tangible nature of commodities, Huey Evans said the real draw for her in taking the LME chair role was the people she would be working with. “There’s a great team at the LME – I don’t go anywhere that I don’t like and respect the people. I have learned that over the years,” she noted.

“I understood exchanges reasonably well, although that would have evolved, and markets is one aspect of my background. The LME is a unique market and it will be a challenge to understand all the nuances – clearly it will keep the brain going and make me think about what the future of our exchange is,” she added.

Challenges for the LME Technology will play a critical role in the LME’s future, Huey Evans said, with an upgrade of the exchange’s infrastructure on the immediate horizon.

“Technology is a key challenge because we’ve got to do a trading infrastructure refresh and need to be on top of those projects,” she told Metal Market Magazine. “It’s always the most boring but you cannot let it go wrong – the risks are too great. A lot of time will be spent on that,” she added.

Longer-term, technology is also at the center of the debate over the fate of the LME open outcry trading floor, which continues to pit proponents of the ring and its prompt dates system against modernizers favoring electronic trade in cash-cleared, monthly contracts.

The LME has been trialing different ways of using electronic closing prices, including via a volume weighted average price
(VWAP) function, with a decision on the latter expected soon. “All of the VWAP, and other trials we’ve been looking at, are worth trying to see where you get the best price at the end of the day. What the outcome is going to be, it’s too soon to tell,” Huey Evans said.

“There are a lot of financial participants who play the economy but will never play in the ring. They just want a three-month futures contract, it’s what they know, it’s easy, and that’s the way they trade commodities. We also have a multitude of people who want to hedge for five, ten, 20 years, and they want to do it from today,” she added.

While the advent of technology has brought many benefits, it has meant the relationships aspect of trading, including knowing your client and their needs, has faded, Huey Evans noted. “Before electronic trading, you knew who your client was, whether you trusted them or not, why they were doing the trade. It was all about relationships,” she said. “When I started my business teaching people about swaps, I went out to boards of banks and talked about asset liability management to show the benefit of offsetting their assets and their liabilities. That’s kind of gone away,” she added.

Noting that most markets have gone electronic, Huey Evans said that transition has been injurious to the market in some places while in other places it is easier to get transactions done because there is more transparency. “As much as I believe in right conduct and I hope the world is moving toward better conduct, I’m not so sure it brings out the best in people when you can hide behind an electronic system,” she added.

Similarly the advent of algorithmic trading has brought changes to the trading environment, Huey Evans noted. “Algo traders have become part of the market and while they have a role to play, you can’t allow them to drive the markets because that’s not a real market. If you have more volume from algo trading than actual underlying business based on supply and demand, then we’re doing something wrong,” she said.

Regulation

In the years since the global financial crisis of 2008-09, financial markets have seen a plethora of rules and regulations designed to prevent a similar crisis from developing again. But many markets lament what they see as over-regulation, a perception that Huey Evans tends to agree with.

“I do think regulation has gone overboard. However, I can’t understand why we didn’t clean things up sooner. Why does it take a regulator to tell a company, ‘you’re not doing this well’?

Companies should already have good governance and processes around everything they do,” she said.

“Regulators recognized changes were not made quickly enough. Therefore, regulators are imposing more and more rules on the basis that you can take risk in accordance with the capital base you have,” she added.

But as additional capital adequacy requirements have been imposed, liquidity has reduced in the markets, she noted. “Those firms who still run sizeable value at risk (VAR) positions are making more money than most and are becoming dominant players,” she said. “Trading floors are less risk taking now than previously, with risk laid off immediately and a lot more diversification in terms of how it is laid off and with which market participants,” she added.

But according to Huey Evans, who is agnostic about which venue LME members use to trade, the fate of the floor is not intrinsically linked to regulation. “Regulation is unlikely to have anything to do with the fate of the LME trading floor; the future of the floor is going to be determined by the type of members and participants it has. I don’t know what the correct future model is, but I do know that right now you’ve got floor members acting both as agent and as principal for producers, consumers, hedgers – their customer base is vast,” she said.

“I’m indifferent really to what venue is used. What I care about is price transparency and price formation, so that when we have an official close and a closing price, those prices really represent all market participants,” she added.

Responsible sourcing Responsible sourcing, a key topic for the exchange over the past year and set to remain so in the future, is something Huey Evans is prioritizing. “I believe we all have to do our bit. Buying something that’s irresponsibly sourced is the wrong thing to do. Environmental, social and corporate governance (ESG) costs money, but it is essential,” she said.

It is a subject that she is familiar with; Huey Evans sits on the board of ConocoPhillips as well as its audit and public policy committees, and has worked on various projects to drive improved community relationships and the oil and gas major’s sustainability footprint.

“Many of the big mining companies are doing the same thing [as in oil and gas], but not enough. A lot of them are dealing in countries that are problematic, and the monies aren’t going back into the communities, to the artisanal miners, to the indigenous people,” she said.

“Miners and oil companies need to have a social license to do business and they have to pay for it. They often pay for it to governments, and then the governments should be giving back. But also they should be doing something directly themselves,” she told Metal Market Magazine.

“I’m truly passionate about it and I see it works, but we can all do more. The LME has to put the pressure on,” she added.

Gender diversity

As the LME’s first woman in the role of chair, Huey Evans believes gender diversity is about giving women a stronger voice in a world that has been dominated by men. “I am very keen to address the issue of how to bring more women into commodities, starting with the practical elements of attracting women with the desired skill-sets to commodities in the first instance,” she said.

“Once we have attracted more women to the industry, we then have to keep them there – since the more women we have in leadership roles the more of an impact it will have – so we need to look at sponsorship, mentorship and succession planning. I’m certain that greater diversity in commodities – and of course it goes beyond gender diversity – will quite simply lead to greater success,” she added.

The male-dominated management of mining companies typically require senior staff to live and work at operating assets around the world – something that Huey Evans said is a further constraint on women’s careers.

“There’s a debate – people whose careers have come up that way think it’s absolutely essential to know how your operations work, and you can’t just do it from central office. It’s not always convenient, it’s not always safe, but it’s still part of the mindset,” she noted.
“So boards have to say, ‘do we really think that is necessary?’ It requires women who are willing to travel, and families that can go with them or be split up. That discussion is part of the problem still,” she added.

Huey Evans carved her own path through hard work and sheer determination, and admits it is “super hard to do it on your own, and far better to have someone to support you.”

“I felt strongly enough about getting home at a certain hour – it was still super late – but at least I could put my daughter to bed and try to read her a story when I was home. Then I’d get back on the phone and work from home at night,” she recalled. “People would say, ‘but you’re not sticking around at the office, you’re leaving early.’ It didn’t matter that I worked until very late at home. That was the pressure. It probably half killed me, but I did it. Should I have done it? I don’t know. It was a lot of hard work,” she added.

Huey Evans said that at some point as a child her daughter Alexandra, now a script writer in Los Angeles, resented that she was not around as much as other parents. “In hindsight my daughter has said she really appreciates what I did. That recognition came when she got to around 15. When you’re younger it’s not so easy,” she added.

She is hopeful that she can help spearhead diversity and inclusion because she is in a position where the LME can do something about it. The exchange recently held its first ever Women in Commodities lunch, bringing together women from across the industry.

“I’m extremely supported by our chief executive officer Matt Chamberlain, who’s done a great job within the LME of making sure it has a balance of women. The LME gender pay gap is done well, although yes, we can always raise it and look for more parity, so more senior women are needed in certain positions,” she said.

“Chairman or chairwoman? I don’t care what you call me, the job is still the same,” she added.

To view the entire issue, please click here.

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