Equity derivatives traders are expecting higher trading volumes in Europe in 2011, following a reduction in activity for the 12 months since mid-year 2009, according to a new study by financial research firm Greenwich Associates.
Respondents to the survey were mildly optimistic, with approximately 55% of European institutions predicting their usage of flow equity derivatives products would increase in 2011, 31% anticipating no change and the remainder forecasting a decline. In structured equity products, institutions were more mixed in opinion, with 40% expecting to increase their usage, 40% expecting no change, and almost 20% expecting their usage to decrease ”somewhat' in 2011.
According to Greenwich, the average commission spend from trading options products declined by approximately 4% among European institutions from H1 2009 to H1 2010, whereas the average notional volume of trades of structured equity/securitised products executed by these institutions increased by about 5% to US$165 billion over the same period.
“The modest decline in options trading spend among European institutions over the past year reflects the sharp slowdown in trading activity in Q2 2010 following what was widely regarded as a strong start to the year,” said Greenwich Associates consultant Jay Bennett. “The year-to-year drop in options commission flow was actually much more pronounced in the United States, where we estimate commission spend fell about 20% from 2009 to 2010.”
The report's authors suggested that market participants felt a strong need for a better year next year, despite market uncertainty. “There's a lack of conviction among investors,” said John Colon, a consultant at Greenwich. “They have qualms about the strength of the economic recovery and the euro. There's a lot of cash on the sidelines, which means less money going into equity markets which means less activity in equity derivatives markets. But European institutions remain hopeful.”