6:08 am - Thursday March 23, 2017

Current Trends in Equity Derivatives Market Place

Equity Derivatives fall into following four categories

  • Flow derivatives – vanilla, listed and OTC options, variance, futures and synthetic futures, convertibles
  • Delta 1 – Single Stock, Sector Swaps, ETFs, Pnotes
  • Exotics
  • Convertibles

An insight into the current trends in global equity derivatives markets reveals an interesting reading as under:

Business

  • Listed volumes growing on back of a move to CCP for OTC products
  • Focus by IB  on Equities & Equity Derivatives; upgrades to sales & trading businesses & technology (FT 29-12-11)
  • Significant capital flows into Asia-Pacific in areas of Sales, Research and Technology; Hong Kong and Korea
  • Clients looking for online access to structured products
  • Notional outstanding amounts of OTC Equity Derivatives  been growing  (past 2 years) in Asia ex-Japan (BIS Report 06-11)

Regulatory

  • The convergence of cash and flow derivatives will be further driven by the regulatory obligation to clear over-the-counter (OTC) derivatives through central clearing counterparties (CCP).
  • Cost of adapting to a CCP model  & potential margins compression
  • Loss of anonymity due to extension of supervisory oversight

Technology

  • Improve STP process for OTC derivatives
  • Increase automation of retail structured product offering
  • Expansion of Electronic Trading for OTC and Structured Products
  • Leverage low-touch electronic trading tools to drive scale
  • Build out distribution & platform for high touch derivatives and improve flow derivatives capabilities globally

Major challenges

  • Capturing corporate actions in real time
  • Listing in multiple exchanges
  • Complex operations of exchange houses
  • Issues and operations of depository receipts
  • Emerging market challenges

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