Majority of respondents expect growth to continue, led by commodities and equities; pandemic and political risks top list of concerns facing the industry; and China, bitcoin and operational efficiency are key focus areas for banks, brokers and technology vendors.
FIA today released a report summarizing the findings from a survey conducted at the beginning of 2021 to assess the outlook for the global cleared derivatives industry. The survey gathered feedback from people working at banks, brokers, exchanges, technology vendors and other firms that support the trading and clearing of derivatives such as futures and options.
The survey found that two-thirds of the respondents expect that trading volumes, one of the main drivers for growth in this industry, will continue rising in 2021. Derivatives based on commodities and equities, both of which set records in 2020 for the annual number of contracts traded, are seen as having the highest potential for growth in 2021.
The survey also found deep concern about the pandemic’s impact on business, with half of respondents ranking it as the top concern facing the industry this year. Political risk came in second on the list of concerns, followed by technology disruption and then capital requirements.
“Our survey showed that the global cleared derivatives industry is gearing up for continued growth in trading activity and looking for opportunities to enter new markets,” said Walt Lukken, FIA’s president and CEO. “At the same time, the survey confirmed that the industry faces important challenges arising from the pandemic in the form of political risk and technology disruption.”
FIA conducted the survey in January and February 2021. Of the 274 responses, 57% were from the Americas, 31% from Europe and the Middle East, and 12% from the Asia Pacific region. The responses came primarily from firms that are directly involved in supporting the infrastructure of the global cleared derivatives markets, with 22% from exchanges and clearinghouses, 34% from banks and brokers that serve as intermediaries, 22% from technology vendors and service providers, and 14% from asset managers, commodity suppliers, and proprietary trading firms.
Other key findings:
The survey found that Brexit is viewed primarily as a regulatory challenge. Relatively few respondents expressed concern about its potential to disrupt derivatives markets, which may reflect the fact that many firms have already relocated staff and reoriented their trading and clearing systems. Instead, the respondents flagged the potential for regulatory conflicts and compliance issues as a more critical problem for the industry, given that many firms will need to comply with both UK and EU rules to continue serving their customers.
The survey also assessed the industry’s level of engagement with China’s futures markets, which are among the largest and fastest growing in the world. Access to these markets is limited, but 24% of the respondents reported that their firms are already actively participating, and another 9% said that their firms are likely to enter by the end of this year.
On digital assets, 31% of the respondents said their firms are already participating in markets for bitcoin and other digital assets, and another 10% said their firms are likely to enter by the end of this year. However, the responses showed a marked split by type of firm. Exchanges, independent brokers, and technology vendors were the most engaged with this new asset class, while banks and asset managers tended to be “watching with interest.
Looking inward at the industry’s use of technology, respondents pointed to several areas in the trading and clearing process where innovation and modernization are needed. Post-trade processing was at the top of the list, followed by regulatory compliance and then risk management and collateral management tied for third.
Findings from the survey will be discussed during FIA’s Boca-V virtual conference on 16-18 March. The full report is available here.