Growing structural complexity and the ongoing regulatory onslaught are creating challenges that are forcing global derivatives market participants to adapt or die. Business pressures like the search for alpha in a low-rate environment and the heightened awareness of risk managers everywhere mean it's no longer enough merely to throw technology at the problem, as the marketplace has done so often in the past.
As they adapt to changing market dynamics, firms are no longer able to specialize in a single asset type or regional marketplace. Rather, they need access to a broad range of exchanges and execution venues globally, handling a diverse set of financial products.
Firms don't need to trade in these markets all the time. But traders do need the option, which means the underlying infrastructure to participate in multiple markets and product classes needs to be in place. Which is expensive.
Furthermore, risk managers are demanding a consolidated view of exposures across asset types and geographies. Tools that can provide that kind of view, seamlessly and in real time, have become more of a necessity than a 'nice to have'. Indeed, risk management has shifted from a post-trade, 'middle-office' activity to a pre-trade requirement that often is part of the trading strategy itself.
Satisfying the need for a platform capable of trading in a multi-product, multi-broker, collocated environment, with the requisite speed, STP, risk management and post-trade capabilities, is beyond the pale of many firms' internal IT departments (this overview illustrates the complexity in a single picture). As a result, many firms are turning to third-party providers to support their needs.
But many multi-asset platforms have grown from single-dealer or single-product platforms. These address the specific nuances of the markets in question, providing trading desks with a single point of entry for transaction data into the corresponding risk platform for that line of business.
To perform in the multi-asset world, platforms need to be more agile. There is already considerable momentum underway to transition disparate single-asset trading strategies into one coherent platform that's capable of providing an aggregate view of risk across the breadth of a firm's derivatives trading activities, but also simplifies operational processes.
To learn more about current challenges to derivatives trading, feel free to download the TABB Group report "Structural complexity driving next-generation demands", courtesy of Itiviti. With insight from 72 buy-side, sell-side and proprietary trading firms this in-depth report examines the factors that drive investment decisions in derivatives trading technology.