For an asset class so deeply intertwined with global financial risk, price discovery and strategic portfolio construction, futures and options remain surprisingly under-served. Compared with cash equities or FX, the listed derivatives space is often still perceived as something ancillary – a useful tool, but not one commanding the same investment in technology or execution infrastructure.
Darren Smith
The industry has long recognised the value of these instruments, yet continues to operate with a lingering sense that derivatives are functional rather than formative. It raises a central question: is the market truly doing enough for futures and options, or have we grown too comfortable accepting modest ambition in a space capable of far more?
This complexity is part of the story. Derivatives are less visible, less intuitive and often less discussed outside of specialised trading teams. But that lack of visibility is exactly why scrutiny matters. When something becomes a background process, attention slips – and with it, the drive to innovate.
The industry’s blind spot
Speak to traders or execution desks and a familiar theme emerges. Listed derivatives can feel like the forgotten corner of the execution world, treated as a secondary service rather than a performance-driven opportunity. Juniorisation has played a significant role in this.
Derivatives desks across the sell-side increasingly resemble operational hubs more than trading engines, staffed to process flow rather than challenge its routing. Technology investment follows the same path, typically favouring higher margin, higher-profile asset classes while futures and options are bolted on rather than built for purpose.
There is also the matter of how clearing relationships shape behaviour. When a large proportion of client volume flows through captive channels, the incentive to disrupt execution, tighten pricing or explore alternative liquidity pathways weakens. Comfortable flows encourage maintenance, not innovation.
An execution provider without pressure to compete can simply pass orders along the path of least friction. The consequence is a market where price improvement is possible but not pursued, functionality exists but is seldom utilised, and service quality plateaus.
The question, then, is not whether the industry understands futures and options, but whether it values them enough to push the boundaries of what execution could be. If better outcomes are achievable but not delivered, is value being left on the table?
A different approach is possible
Change begins with reframing the asset class itself. Rather than treating listed derivatives as a cost centre or an operational necessity, providers could approach them as a space for performance-driven execution. The difference between simply facilitating trades and actively improving outcomes is stark, and the agency model illustrates this clearly.
Without captive flow, an agency broker must win business on merit. Performance becomes the differentiator; price improvement and efficient routing become essential rather than optional.
With captive flow the incentive is to direct it toward internal structures, central risk books by default, or the path of least resistance. However on the agency side, everything must be earned – which naturally encourages providers to fight harder for every fill. It becomes a model built around client outcomes rather than preservation of existing process.
This is not an argument for one firm over another, but an example of what the industry could achieve if this mindset were more widely adopted. When execution is approached with curiosity rather than maintenance, new paths open: inside-the-screen pricing on UST rolls, synthetic quoting for US Treasury options, FX futures optimisation, and the broader use of exchange functionality that remains technically available but commercially underused.
These gains are not incremental. They can amount to meaningfully improved levels of execution. For instance, in US Treasury rolls, fully utilising liquidity providers and exchange functionality can reduce costs by as much as 20% compared to standard screen bid/offer levels.
What clients should demand next
Daniel Noorian
If the industry is to evolve, clients must play a role in pulling it forward. Too frequently, conversations begin and end with commission rates. Cost matters, of course, but when low-touch pricing becomes the only decision driver, service too often follows suit.
As Daniel Noorian, head of execution and quantitative services, observes: “The push toward lower rates encourages a cycle where less attention is paid, senior expertise disappears, desks become more transactional, and innovation slows. Meanwhile, the potential savings from better fills can eclipse the savings earned from fee negotiation alone.”
In essense, clients should be asking more of their execution partners: not only focusing on cost, but on the value being delivered. Execution can often be improved versus screen, liquidity can be accessed more intelligently, and algos from leading external providers can deliver better outcomes.
If these improvements are available, they should be the default.
The road ahead
The listed derivatives market is not underachieving because it lacks capability, rather because it lacks pressure. With the right expectations from buy-side firms and the right investment from execution providers, this space could look very different over the next five years.
Liquidnet’s expansion into equity derivatives is one step designed to widen access, deepen price competition and create more cross-asset opportunity for clients seeking relative value, macro hedging or tactical exposure.
However, the final question rests with the industry, not any one firm. Futures and options deserve a better future. The mechanics exist, the technology exists, and the demand exists – yet the commitment to push execution forward still varies dramatically across providers. If we believe outcomes matter, then the path ahead should be defined by efficiency, transparency and a willingness to leverage every tool available.
Are we doing enough? If there is hesitation in the answer, then progress remains not only possible, but necessary.