Investment Operations

Study Finds Increased Demand for Margin Efficiencies and Exchange Competition

Acuiti's Will Mitting

Demand for greater competition between derivatives exchanges has been strengthened by the Covid-19 crisis, a whitepaper by Acuiti has found.

The whitepaper, Execution, clearing and competition in a post-Covid world, was produced in partnership with CurveGlobal Markets and based on a survey of 88 senior executives from across the global derivatives market.

The study found that 79% of respondents were in favor of greater competition between exchanges with 31% saying they are more in favor as a result of the crisis.

Outside the US options market, where the market structure of multiple execution venues connecting to a single clearinghouse enables choice for execution, competition in listed derivatives markets has historically been weak.

The whitepaper explores the reasons behind this and asks what needs to change for greater competition in listed derivatives to be realized.

“We found growing demand for greater competition for execution in listed derivatives markets,” said Will Mitting, founder and managing director of Acuiti. “However, market structure remains a significant barrier to achieving this.

“In addition, historically the market has tended to use competing exchange launches to put pressure on the incumbent to reduce fees rather than to create sustainable and healthy long-term competition,” added Mitting.

The whitepaper also explores how attitudes to clearing and margin efficiency have changed as a result of the experience of market stress during February, March and April.

The survey found that more than three-quarters of respondents expected margins to be higher for a prolonged period. However, there were significant differences between company types in their views on how initial margins should be managed during times of increased volatility.

80% of sell-side clearing providers and 65% of buyside firms wanted permanently higher initial margins that remain more constant during market stress. In contrast, 80% of proprietary trading firms and 58% of brokers called for lower margins that spiked up during volatile periods.

To download the whitepaper, click this link.