Report shows buy-side are the least optimistic about derivatives revenue increasing

Low volatility, regulation and Brexit are factors dampening optimism for buy-side derivatives participants.

Buy-side respondents to a new survey appear they are least optimistic about revenues stemming from the derivatives market rising in the next three months, citing issues such as low volatility, regulation and Brexit as forming their opinion.

The inaugural Derivatives Insight Report from Acuiti found that the majority of market participants were optimistic about growth in the coming quarter, but banks and the buy-side were the least confident with just 36% and 35% of respondents predicting an increase in revenues, respectively, and 18% of respondents predicting a decrease. 

The research also showed that the buy-side are anticipating an increase in their cost base over the coming months. Of those surveyed, 72% of buy-side respondents that reported cost increases identified Brexit, meeting new regulations or higher costs from service providers as the major drivers. 

Conversely, brokers were most likely to cite expansionist factors incorporating new staff, on-boarding new technology or investment in new services with 70% of those reporting cost increase citing these as factors. 

Commenting on the report, Will Mitting, managing director of Acuiti, said: “The overall performance and outlook for the derivatives market is positive but the ongoing uncertainty over Brexit is having a major impact on market participants in both the UK and Europe. 

“Despite a strong month for volumes in March and a positive performance outside Europe, Brexit is causing a cloud over revenue growth and leading to sharp rises in cost bases in both the UK and the other EU countries.”

Over one-third of the total respondents reported month-on-month revenue increases and 33% cited a better year-on-year performance while just 17% of total respondents reported lower month-on-month revenues.

However, respondents to the survey based in the UK reported both the most depressed revenues and the fastest rising cost bases with the majority citing uncertainty over Brexit as a primary barrier to growing revenues.