Today’s FT carries good news for London-based Derivatives traders which will also have a significant impact on London as a financial centre and source of business for TechMarketView readers.
US and European regulators have agreed that derivatives can be traded in the EU without facing possible sanctions from Washington. Underlying this agreement is the acceptance by the US regulator that the EU regulations are tough enough to protect the interests of US investors in this huge marketplace, where outstanding contracts are valued at over $600tr. (which compares with US GDP at a mere $16tr.).
Failure to agree could have meant that many of the large investment banks in London would have had to move significant parts of their operations across the Atlantic. OTC derivatives are estimated to generate in excess of 30% of revenues of the investment banking divisions of the large Investment Banks. In addition, derivatives trading is a major source of volume and liquidity for the underlying markets.
Trading in Derivatives is also at the sharp end of the trend towards big data, with huge amounts of computing and intellectual power thrown at devising ever more sophisticated ways of delivering performance (or “alpha”). Trading and settlement of derivatives are also much more complex than for the underlying stocks. This week’s decision is extremely positive news for those Software and IT Services vendors which support this dynamic and important market segment.
As the TechMarketView Finance Stream builds, we will be able to provide additional insight into this area. Watch this space!