11 December 2013

FOW Intelligence: Derivatives markets rebound in 2013

The derivatives market has seen an upturn across the board this year and participants can expect even better fortunes in 2014, according to a panel at FOW's Derivatives World London.

Rising volumes, increasing flows of business to capture and more clarity surrounding regulations has seen the market recover from a stagnant 2012. While trading activity dropped sharply last year, asset classes including interest rate and index derivatives experienced more active trading in 2013, boosting exchange volumes across the world. “2013 certainly in the brokerage community has been the best year in the last three or four years", said Steve Martin, COO of the GH Financials. “Volumes are up, margins are firming and there is a lot of business out there to capture.”

During 2012, the market was still awaiting clarity around regulations and the uncertainty was felt throughout the market. This year though, the US has implemented its clearing mandates in three stages, while also finalising rules for swap execution facilities and launching them into the market. Other policies such as the Volcker rule and trade reporting requirements have also been finalised, despite the outcomes not being warmly welcomed by the market.

“There are new exchanges out there, which from a trading perspective, gives us new opportunities", Adam Musikant, director, Hamilton Court agreed. “I’m quite optimistic going forward, 2014 is exciting. The funnel effect you have seen on the exchange side and clearing side is giving us a nice foundation to build on.”

Nasdaq OMX NLX set up in London this year, while the city also awaits the launch of GMEX and CME Europe in the New Year. There have also been further additions of platforms in the US equity options market. In terms of volumes, CME has posted one of the biggest upturns this year with its activity up 7.5 per cent according to FOW data, while CBOT’s volumes have also risen 15 per cent.

“Volumes have picked up, we have seen that in all exchange volumes and most of that has been in the interest rate derivatives world", said William Knottenbelt, managing director, EMEA head, CME Group. He added that trade reporting requirements are a pressing issue moving into the New Year. “Six institutions have got their authorisation, there are five million contracts per day that have to be reconciled and we reckon 100,000 institutions will be affected by this."

In Europe, trade reporting will apply to both exchange traded and over the counter derivatives in the New Year. Most institutions had expected there to be a delay, meaning many will not be ready come the implementation date in February, according to FOW sources.

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