OTC Derivatives Market Update

Derivatives move into the shadows

According to FT shadow financial institutions are taking advantage of a wave of new derivatives regulation imposed on the banks. This has resulted in a substantial portion of the derivative market moving away from the mainstream banks and towards the shadow financial institutions.

Hedge funds and smaller banks are now trading more than 50% of the market volume in interest rate and FX . This has helped to narrow the spreads which is great news for the customers but not so good for profits in banks. According to Coalition, the research firm, interest rate trading revenues at the 10 largest global investment banks have fallen 30 per cent in the past three years.

London as the main centre for OTC derivatives trading

The article also reported that the City of London is tightening its grip as the world’s main centre for both foreign exchange and off-exchange derivatives trading with 40-50 per cent of all global trades now passing through London. This trend is likely to maintain as some of the world’s biggest swaps houses including L.CHClearnet and CME Group are looking to expand their London based operations.

If you want to read more about it go to the article on: Ft.com

Updated guidelines from FIX

Elsewhere, FIX, the industry driven global financial trading standards body, has issued updated guidelines in respect of the electronic trading of swap execution facilities (SEFs) and organised trading facilities (OTFs) that execute OTC derivatives. The new guidelines will be explained in full at the FIX meeting in Paris on 18 September.

Drawn up in response to G20 requirements the recommendations have been extended to cover fresh areas such as differing permutations of cross-asset trades, post-trade allocations for fixed income trades and the electronic booking of voice trades. The new recommendations also provide standardised guidance on market conventions, thereby reducing the risks associated with misinterpretation by trading partners.

In releasing the guidance the Co-Chair of the FIX Trading Community Global Fixed Income Subcommittee, Sassan Danesh, said:  “FIX has played a huge role in revolutionising the equity markets, enabling new trading venues to establish themselves easily, offering cost-efficient connectivity to trading partners across a fragmented marketplace.  By encouraging the use of FIX for fixed income across the broad range of financial instruments covered by the updated guidelines, we hope to witness similar results in this market, beginning with the SEF go-live later this year.”

If you want to learn more about derivatives the next Eureka Financial course on Understanding derivatives focuses on explaining different types of derivatives, their characteristics, pricing strategies and use by various market players.


Eureka Financial offers over 100 public and in-house training courses in banking and finance, corporate finance and M&A, risk management, operations, investments, wealth management, soft skills and management. For more details visit: www.eurekafinancial.com

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