A synopsis of the headlines in the derivatives industry from the last week
The shrinking FCM
The ranks of futures commission merchants of the $27tn listed derivatives markets are shrinking at a faster rate than expected thanks to prolonged low interest rates and tighter regulations, according to the Commodity Futures Trading Commission.
Figures from the UK regulator show that there were 74 FCMs at the end of February, down from 91 a year earlier, and 189 in February 2005. The US trend of accelerated concentration reflects global market conditions because most large futures brokers have operations across the world. Margins have suffered due to the near-zero interest rates while the demise of MF Global, which collapsed with $1.6bn in customer funds trapped inside the firm, led to stricter and costly new rules.
There is concern that the dwindling number could hinder the industry’s ability to shoulder customer positions if one of the largest brokers failed, as happened with Lehman Brothers in 2008 and Refco in 2006. Three quarters of assets held by US registered brokers on behalf of their customers — ranging from farmers to fund managers — are held with the 10 biggest industry players, including Goldman Sachs, JPMorgan Chase and Société Générale.
New Head of Tech & Ops for LCH
LCH.Clearnet Group, the global clearing house, has appointed Steve Briscoe as the new group head of technology and operations. He will be responsible for the provision of IT and Operations across the group’s legal entities.
Briscoe who has 20 years experience in the financial services industry joins from from RBS, where he spent five years, most recently as head of operations for the markets division. Before RBS, he spent 15 years at UBS in leadership roles across a range of technology developments and in operations.
Briscoe will work closely with Martin Ryan, global head of operations, who has been appointed as the group head of shared services for LSEG.
Icap and Bats form alliance
Icap, the world’s largest interdealer broker, and Bats Chi-X Europe, the region’s largest stock exchange, have joined forces to improve transparency to the exchange for the physical contract segment of the derivatives market.
Through the partnership, Icap’s clients will able to clear the exchange-for-physical contract which includes both the over-the-counter and futures leg of an equity derivative via a Bats trade reporting service devised for cash equities.
Icap and Bats launched the service specifically for equity index EFP contracts. These are an exchange between two counterparties of a futures contract and a basket of the underlying assets of that future.
Jeffries exits commodities
Jefferies Group will sell most of its Bache unit’s commodities and financial derivatives accounts to Societe Generale, ending the investment bank’s four-year foray into the competitive brokerage business.
The deal, which is expected to close by the end of the sector quarter, ends a months-long effort by Jefferies, owned by Leucadia National Corp, to divest the unit as it struggles with high costs and falling fees. It acquired Prudential Bache for $430m in 2011.
The move is the latest in a long line of fims exiting the commodities business. Over the past year, ICAP closed its metals business last year, while several banks including Deutsche Bank and Barclays have shut their commodities futures businesses.
IOSCO consults on business continuity
The International Organisation of Securities Commissions (IOSCO) published two consultation reports aimed at further enhancing the ability of financial markets and intermediaries to manage risks, withstand catastrophic events, and resume their services in the event of disruption.
The first consultation report, Mechanisms for Trading Venues to Effectively Manage Electronic Trading Risks and Plans for Business Continuity, (ttps://www.iosco.org/library/pubdocs/pdf/IOSCOPD483.pdf) provides a comprehensive overview of the steps trading venues will need to take to manage the risks associated with electronic trading as well as the structures they will be required to implement to manage disruptions through business continuity plans. As technology continues to evolve, trading venues will need to continuously adapt to these changes.
Iosco´s second consultation report, “Market Intermediary Business Continuity and Recovery Planning, (https://www.iosco.org/library/pubdocs/pdf/IOSCOPD484.pdf) proposes standards and sound practices that regulators could consider as part of their oversight of the business continuity and recovery planning by market intermediaries.