Increasing confidence in the future and options market has prompted a growth in electronic trading, a new report has outlined.
US futures and options trading has bounced back from the dent in confidence futures brokers suffered on the back of two high-profile firms ceased operations, the report contended. Also buoying volumes is increased electronification, with algo trading and the use of high-frequency trading strategies on the rise.
Algorithmic execution strategies as a proportion of electronic trading grew to 66% in 2012 from 63% in 2011, while overall figures for electronic trading of options and futures grew to 93% last year from 92% of all activity in 2011. The report predicts that by 2015, 97% of all listed futures and options will be traded electronically, of which 80% will be done using algorithmic strategies.
The report, compiled by consultancy Aite Group, predicts steady growth of the listed futures and options industry as new regulations – namely the Dodd-Frank Act in the US and the European markets infrastructure regulation in Europe – increases demands for swaps trading, pushing activity into futures and options.
This has already led to a so-called futurisation of swaps, with the growth of new futures products that mimic standardised OTC contracts occurring from October last year, a phenomenon Aite predicts will sustain growth in coming years for futures and options.
“Ongoing, transparency-promoting global regulatory changes and the centralisation of clearing and trading for OTC derivatives instruments will force more electronic trading in the futures and options space,” said Howard Tai, senior analyst with Aite Group and author of the report.
The report was based on a series of vendor briefings, face-to-face meetings, live product demos and WebEx demos that took place between March and December 2012.
In 2011, confidence in futures and options trading diminished as MF Global and Peregrine Financial were both caught allegedly tapping customer segregated funds for their own proprietary funding, allegations which contributed to both firms ceasing operations.