Buy-side waiting for ‘uberisation’ in futures market

The buy-side are unimpressed with new futures offerings, resulting in falling volumes.

Buy-side traders are dissatisfied with the level of new products in the listed futures space, according to panellists at the FIA IDX conference.

Industry efforts have focused on bringing standardisation to the OTC derivatives market, with the introduction swap futures products. However, demand has fallen due to a lack of buy-side participation. 

According to Eileen Herlihy, head of derivatives clearing sales EMEA at JP Morgan, clients have not demanded the current initiatives out there in the market.

“Our clients want to know what is going to be the next ‘uber’ product. We haven’t seen so far, from my perspective, clients knocking on our door saying ‘there is a product we want you to support that we don’t already have on our repertoire,” said Herlihy.

“For the majority of our clients the focus is moving traditionally bilateral OTC products into the cleared space rather than looking at listed products.”

Last month the frontloading obligation began for large asset managers, meaning they will now have to retrospectively clear their existing interest rate swaps trades.

Russ Oxley, head of fixed income absolute return at Old Mutual Global Investors, believes there is a high demand for more cost-efficient listed futures products, however the proliferation of new initiatives is not happening fast enough.

 “We can’t be left with having fragmented trading strategies in different areas,” Oxley explained.

“Given the banks don’t want to warehouse the risk anymore, we need a proliferation of products and more granularity.”

Stephen Taylor, chief risk officer at Tower Trading Group, agreed that the industry needs to be more inventive around the products operating in the new regulatory environment.

“If the migration of bilateral OTC products to centrally cleared listed products is the direction the world wants, we have to look at ways to provide not just the instruments but the mechanisms to transfer risk, and the flow dynamics that are necessary  to be attractive [to the buy-side],” said Taylor.

“There is no good mechanism to bring in the large tick sizes and large transfers of risk from the buy-side community into the listed markets because they are developed on a volume focus model. We have to think differently about mechanisms which allow the buy-side to face up against liquidity providers that can warehouse the risk for a longer time period.”