Market participants within Europe are optimistic about their growth prospects and the future of European derivatives markets, however, many are looking outside Europe for client growth, according to Will Mitting, Founder and Managing Director of Acuiti.
“Fragmented markets are increasing the costs of trading in Europe while regulation is hampering many firms’ ability to commit capital to expansion. For Europe to fully realise its potential, it is essential that these issues are addressed,” he said.
The US has been a focus for many firms looking to capitalise on the strengths of its financial markets, according to a new report by FIA and Acuiti.
For principal trading firms, the huge growth of US retail options trading has created a pull factor, according to the findings.
For asset managers and hedge funds, both the out-performance of US single stocks and the centrality of the S&P 500 to global markets have encouraged asset allocation to the region.
This has also been the case in US rates futures markets, by far the deepest and most liquid in the world, which have attracted non-US buy-side and principal trading firms alike, the report said.
The survey also found a high level of concern about existing and prospective regulations as well as the aftereffects of Brexit.
“This report provides an important window into how the European listed derivatives industry views the major challenges and opportunities in the years ahead,” said Bruce Savage, FIA Head of Europe.
“We look forward to working with European policy makers and the industry on ways to leverage the findings of this report and accelerate the growth of European markets.”
The key trends identified in this report are:
- Global ambitions: Many firms see more potential growth in terms of clients and trading volume outside of Europe than inside Europe.
- Regulatory headwinds: There is a broad consensus across the industry that the combined impact of multiple sets of regulations has created a major burden for the industry.
- Brexit aftermath: Most listed derivatives market participants see Brexit as having a negative effect on London’s stature as a global financial center and predict that Paris will be the European financial center with the greatest growth potential over the next five years.
- Cyber risk: The threat of disruption from cyber-attack was identified as the single greatest risk that the industry is currently facing.
- Growth opportunities: Futures and options based on interest rates and energy were viewed as having the greatest growth potential over the next five years. Crypto and carbon also look attractive to many firms, although a sizeable number of survey respondents said their firms have no intention of entering these new asset classes.
- Efficiency vs Innovation: Views on technology trends vary significantly across the industry. Clearing brokers and other sell-side firms are prioritizing gains in efficiency from their investments in technology. In contrast, principal trading firms and exchanges are more interested in innovative new technologies such as artificial intelligence and blockchain.
“To better serve the exchange-traded and cleared derivatives markets, FIA is keenly interested in understanding the dynamics of growth and innovation at both the regional and global level,” said Walt Lukken, FIA President and CEO.
“Many of our most important members are based in Europe, and we are delighted to partner with Acuiti on this initiative to understand how the industry sees the outlook for this region.”
Acuiti surveyed more than 100 individuals at a variety of firms active in Europe, including clearing brokers, asset managers, hedge funds, principal trading firms, exchanges and software vendors.
