Dealing with structural complexity in global derivatives markets

By Martin Nilsson
October 20, 2016
Share:

Much is made of the power of regulation to drive capital markets firms’ IT investment decisions. But active players in global derivatives markets are also being bombarded by mounting structural complexity, so much so that a recent TABB Group survey found that a full 50% of firms are looking to replace their trading platforms within the next three years.

Regulation is playing its role in this growing complexity. But a number of other factors are involved, and combined they are creating a derivative trading landscape that is making traditional trading tools obsolete. Making sense of the rapidly evolving market structure and the growing number of financial products has become a daily challenge that can no longer be supported through manual processes.

At the heart of the ongoing structural change in derivatives markets is investors’ need to seek out new products and regions. Increasing client demand and rising volumes against the backdrop of near-zero interest rates are forcing investors to look beyond traditional investment segments. As a result, they are expanding their use of futures and options to manage risk.

Moreover, political considerations like changes in global interest-rate policy, the UK’s Brexit vote to leave the EU and an overall uncertain geopolitical environment are all contributing to volatility. Firms are now required to manage complexity across multiple jurisdictions and product segments, while at the same time keeping on top of the constantly shifting global regulatory framework.

In many cases, regional regulatory initiatives are translated into global mandates for trading firms, shifting business IT decisions across departments and functions. Risk and compliance have an increasingly vocal role in what was once a trading desk decision, adding another layer of complexity for market participants to deal with.

Faced with this dynamic, derivatives markets participants need to keep client considerations at the forefront of their trading technology decision-making process. Traders in these markets have always needed speed, flexibility and access to global liquidity sources. But the need is growing for powerful analytics, the ability to change strategies on the fly, and consistent best-of-class capabilities spanning multiple asset classes, geographies and regulatory regimes.

The TABB Group report – drawing on interviews with 72 buy-side, sell-side and proprietary trading firms – suggests the industry is on the cusp of major technological change, as participants seek to replace antiquated trading systems with modern platforms that can meet their changing needs. With cost concerns a constant, firms are rethinking their approach to IT investments and aggressively exploring ways to lower costs while staying abreast of the technology curve.

Related Content

MiFID II: the need for a centralized messaging platform

MiFID II: the need for a centralized messaging platform

Risk & Compliance With the pressure of initial implementation now a distant memory, MiFID II-regulated firms are turning their attention to the real work required to create sustainable long-term solutions. For many, the race to meet the January 3 deadline meant implementing temporary compliance processes that were far from perfect. Unless updated and improved, these could lead to […] July 10, 2018

The evolution of enterprise testing

The evolution of enterprise testing

FIX Infrastructure Testing in the financial industry is changing, both as a consequence of new regulatory requirements and in response to changing perceptions of the value it generates. In this video, Pawan Sharma – VP Global Services at Itiviti – delves into the factors that have driven the evolution of testing practices and the key challenges that […] June 19, 2018

The new Itiviti

The new Itiviti

Execution Following the merger between Itiviti and ULLINK in March 2018, Richard Bentley – Chief Product Officer of the combined company – talks to The TRADE about the new company at IDX London 2018. On the agenda: the rationale behind the merger, the company’s individual and combined strengths, product strategy going forward, key priorities for the […] June 11, 2018

Moving towards enterprise level testing

Moving towards enterprise level testing

FIX Infrastructure Over the years, testing has increasingly become a strategic activity that is seen less as a cost and more as an opportunity to maximize efficiency and support business activity. As trading systems have become more and more complex, the demands on testing tools have simultaneously grown, paving the way for their evolution into increasingly refined […] June 7, 2018

Request TABB Group Report: Derivatives Trading Technology: Structural Complexity Driving Next Generation Demands.

Please complete the form to download this report.

By submitting this form, you acknowledge that data collected by us will be handled in accordance with our Privacy Notice.

Itiviti Talks

Get our view on global capital markets

Subscribe

Subscription successful

Thank you for subscribing!

Close window

Itiviti Talks

Get our view on global capital markets

Weekly email

    Trends in global capital markets from a technology perspective.

By submitting this form, you acknowledge that data collected by us will be handled in accordance with our Privacy Notice.