A new report, ‘Derivatives Market Structure 2024: Focusing on Capital and Workflow Efficiency’, has found that 58% percent of end users of derivatives, and 50% of overall participants, expect bank capital requirements to have the greatest impact on derivatives trading and clearing in the near future. The regulatory agenda in the EU and US was considered the most pressing concern by 46% of users, a view shared by 43% of total survey participants.
Written by Stephen Bruel, who heads up the Derivatives and FX practice at analyst firm Coalition Greenwich, in partnership with futures, options and centrally cleared derivatives markets trade association FIA, the study found that efforts are being made across the industry to improve efficiency in the use of capital and the processing of trades.
Considering opportunities from growth in the trading of derivatives over the next five years, potential is seen primarily across macroeconomic uncertainty and financial market volatility. Continued growth of retail participation in futures and options markets worldwide was the second most popular prediction, favoured by 37% of trading venue and clearinghouse participants.
Innovation in product development and the emergence of new asset classes was considered a key area for almost 30% of trading venues and clearinghouses surveyed, while more than a fifth of intermediaries predicted that further evolution and expansion of the futures and options markets of China and India will have a significant impact.
In order to improve growth and capacity in the derivatives clearing business, netting and capital efficiency, collateral management and the monitoring of costs and profitability were the three areas requiring the most change, according to intermediaries taking part in the study. Client service was favoured by just 17%, while changing applications for “breakthrough technologies” such as AI and tokenisation were highlighted by a third.
Industry-specific trends are expected to have the same, if not more, impact as broader trends, such as artificial intelligence, the report states. “AI is on the wish list for the industry but largely behind more immediately impactful changes to the market’s current operating model.”
Considering the derivatives trading and clearing workflow, a total 55% of participants expect market analysis and research to be impacted by AI over the next five years. Regulatory compliance and surveillance and front-end trade execution were selected by 39% and 32% respectively, with just 8% referencing collateral management and 11% citing relationship management.
Looking ahead, intermediaries see the development and adoption of global operational standards as a “game-changer” for the trading and clearing workflow. End users favour the use of tokenisation to modernise and accelerate collateral management, while trading venues and clearinghouses expect advances in margin methodology and transparency to have the greatest impact.
©Markets Media Europe 2024
