Lynn Strongin Dodds gleans insights from SGX Global Market Sentiment Index Q1 2025 about the industry’s views on global derivatives.
Industry participants expect this to be a banner year for global derivatives thanks to the turmoil wrought by the second Trump presidency. Markets have been roiled by the impact of tariffs as well as promise of deregulation, according to the SGX Global Market Sentiment Index Q1 2025.
The quarterly survey, produced by Acuiti, takes the temperature of executive’s feelings across the global derivatives spectrum. It found that in the first three months of 2025, firms were much more positive with the index climbing to 78%, up from 69% in the same quarter a year ago.
The view is that Q2 will be as bumpy as Q1 presenting a wide range of opportunities for particular firms to leverage. The year started with China’s DeepSeek disrupting US artificial intelligence giants followed by fears over a global trade war. President Trump has fired several salvos and the recipients are retaliating which injects further uncertainty over the economic outlook. This is not even mentioning the ongoing conflicts in Ukraine and the Middle East where progress on peace talks have stalled.
The result has been the US stock market experienced their worst quarter in almost three years with the S&P 500 plummeting 4.8%. Fears over a recession and increasing prices have cast a pall while confidence consumers have cooled.
By contrast, sell-side clearing firms in the Acuiti report were optimistic – more than most – with a record high of 84 points on the index, up 34 from Q4 2024. This was mainly driven by expectations of higher rates in the US, raised volatility and deregulation. Breaking it down though, multi-national banks and international nonbank future commission merchants (FCMs) were much more bullish than regional banks.
The report said these views provide further indications that current market conditions and the geopolitical environment are likely to help larger firms in the market. Non-bank FCMs also expected to see a growing client base from those looking to expand the number of clearing relationships to improve their operational resilience.
Sell-side execution executives, especially those operating on an agency-basis, were also hopeful because they tend to benefit from tumultuous market conditions as clients trade more often. Deregulation also played a part especially among Tier 1 and 2 banks who along with brokers with limited clearing operations are likely to disproportionately gain from lower capital rules.
The report notes that proprietary trading firms were also more upbeat in Q1 than last quarter. This is not surprising given they are more volume-driven than many and better able to navigate the roller coaster rides which were certainly evident at the beginning of the year.
Volatility was also welcomed by hedge funds who registered a two-point gain on the index to 74. Optimism was marginally higher among systematic funds than their discretionary peers, with many CTAs anticipating a robust performance over the next quarter. However, those in Asia were much more pessimistic than their counterparts which reflected a general cautiousness across the board. Those in the APAC region recorded a 72-reading compared for North America’s 82.
Asset managers were also treading carefully. They bucked the upward trend with an eight-point decline to a 69 on the sentiment benchmark. Larger firms – those with assets under management of more than $500bn – were much more circumspect than their smaller colleagues. This was attributed to market and political uncertainty although in Europe, the backlash against environment social and governance (ESG)-investing was also as a key factor.
Although the focus was on sentiment, the report also explored the different challenges that firms would face this year. Top of the list was risk management systems which have been put under pressure due to the large volumes and sharp intra day market swings. One of the main stumbling blocks was the lack of real-time views of total exposures, especially within more complex, larger firms. In addition, market participants flagged issues with liquidity during market spikes. This was particularly a problem for asset managers who often needed to exit and adjust.
It is no wonder that against this backdrop. both buy and sell-side firms are escalating their spend on automation and technology to become more operationally efficient. All participants are adopting new risk management frameworks and expanding into new derivatives. However, there are some divisions with prop firms increasing exposure to high- volatility markets while asset managers doing the exact opposite.
