Identifying and responding to the demands of traders

By Martin NIlsson
April 27, 2017

The fast pace of derivatives markets makes their participants a demanding group. Derivatives traders must be flexible to succeed, and also need functional capabilities in their technology such as speed, global access and powerful analytics. They confront these needs in an environment affected by new regulation, plus more demands for market access and lower costs.

To keep up with changes in market structure and more new products appearing on the market, derivatives traders must replace tools that have become obsolete. A TABB Group survey of 72 buy-side, sell-side and proprietary trading firms found that half of those firms plan to implement new derivatives trading platforms in the next three years.

The increasing structural complexity of derivatives markets that has resulted from the growth in their volumes drives firms to rely more on technology for their operations. Specifically, the demands of derivatives markets and their operations technology are manifesting in that greater interest in replacing old trading platforms. So users or potential users of these systems are thinking about what functions on their platforms need improvement and what traits of a platform are most important when choosing which platform to install.

The TABB Group survey also asked firms what parts of their derivatives trading platforms need improvement, and how important certain aspects are when choosing a derivatives trading platforms. A few areas of platforms that survey respondents cited as needing improvement also were indicated as important to choosing a platform, particularly compliance capabilities (39% said these need improvement and 84% said these are important to choosing a platform), ease of customisation (50% said needs improvement, 83% said it factors in choosing) and work flow integration (40% said needs improvement, 80% factor it in choosing).

Along with ease of customization, back-office support and risk management were each also cited by 50% of the survey respondents as parts of their derivatives trading platforms that need improvement. Latency and multi-asset support were cited by some respondents as aspects also needing improvement.

Functionality was cited by 95% of those surveyed as important to choosing a derivatives trading platform. Other reasons were each mentioned by at least 80% of those surveyed, including cost of ownership, exchange coverage, availability and redundancy, as well as the items that were also cited as areas for improvement.

The results of the survey support the notion that regulatory compliance capability will figure strongly in firms’ decisions about new derivatives trading platforms, with new derivatives regulation on the horizon. Concern about customisation and work flow integration are in keeping with the demands on derivatives traders for flexibility. The near-total preference for functionality as a factor in choosing a platform reflects the perceived importance of speed, access and analytics capability. In addition, the survey results proved the demand for access to more markets (greater exchange coverage) and lower costs of operation for platforms.

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