(This article first appeared on DerivSource on Traders Magazine.)  

It has been a roller coaster ride in the derivatives world in 2025. We look back at some of the most notable events that have shaped the industry, and which are likely to continue reverberating into 2026.

There is no doubt that volatility was a main feature throughout the year thanks to ongoing geopolitical tensions, shifting monetary and macroeconomic policies. However, President Trump’s Liberation Day tariffs in April upended all asset classes and injected a level of uncertainty that persisted throughout the year.

It is unsurprising that the derivatives market saw an increase in hedging strategies as investors looked to mitigate the risks. Research from the International Swaps and Derivatives Association (ISDA) show activity in credit derivatives was particularly robust with index CD traded notional recording a 23% rise albeit there was a decline in trade count. This was mainly due to credit spreads tightening across high-yield and investment-grade markets, nearing post-global financial crisis lows.

This was attributed to investors searching for yield and committing larger amounts of capital into existing positions rather than initiating a higher number of smaller, speculative trades, driving up average trade size.

ISDA research also revealed that the OTC market enjoyed a surge, particularly in interest rate derivatives. Trading scaled new heights, though gross market values sometimes fell due to netting and collateral, indicating heightened activity but managed risk. IRD traded notional jumped by 53.6% to $142.8 trn in Q3 from $93.0 trn in the same period last year.

This was driven by an increase in overnight index swaps (OIS) which allow institutions to hedge against interest rate fluctuations and manage credit risk.

Crypto 

Crypto derivatives have continued to make their mark this year moving beyond the fringe to become a more mainstream asset class. At the CME, one of the largest players, total trading volume for crypto futures and options surpassed $900 bn in Q3, marking a new all-time high. The average daily open interest (ADOI) reached $31.3 bn, with a peak nominal open interest of $39 bn in mid September,

One reason is a more favourable regulatory environment. President Trump wasted no time after being sworn in for the second time in setting up the President’s Working Group on Digital Asset Markets. The multi-agency body aim is to create a roadmap for digital assets and cement the country’s leadership role in the sector.

There has been a flurry of activity with the Commodity Futures Trading Commission (CFTC) taking the lead. The most recent has been allowing listed spot crypto products to start trading on registered futures exchanges next year. The announcement follows a push from Trump for the CFTC and the US Securities and Exchange Commission to use their existing authority to divide oversight of cryptocurrency even if Congress does not take action first.

The Senate has been considering legislation that would grant the CFTC authority to directly regulate crypto assets that do not qualify as securities, but it has yet to vote on a House-passed bill.

The end of year also saw the CFTC launch a pilot programme to enable bitcoin, ether and the dollar pegged stablecoin USDC (US dollar coin) to be used as collateral for derivatives trades. It applies to broker, swap market participants and clearing houses. In addition, the agency published updated guidance on the use of tokenised real-world assets, including US Treasury securities and money market fund as collateral in the trading of futures and swaps.

The US is not alone in its efforts to make crypto derivatives part of the established asset class community. In May, GFO-X made its debut as the first institutional grade digital assets derivatives trading platform in London. The regulated and centrally cleared platform, backed by the FTSE 100 fund management group M&G, will offer bitcoin index futures and options albeit there are plans to expand its range of products in the future.

Four years ago, the UK’s  Financial Conduct Authority issued warnings over the use of digital assets but fast forward to today and the labour government has  adopted a phased approach to crypto regulation, aiming to position itself as a global hub for digital assets while prioritising consumer protection and financial stability. Over the year, the watchdog has introduced comprehensive regulations covering stablecoins, trading platforms, lending, staking, and custody which are expected to be implemented in 2026.

Meanwhile in Europe, crypto derivatives are mainly regulated under MiFID and not the newly minted Markets in Crypto-Assets Regulation.  MiCA applies to crypto assets that do not already qualify as financial instruments under existing rules. There has been a wave of activity this year in the perpetual futures trading space kicked off by Dutch trading platform making One Trading. It became the first European derivatives exchange to offer regulated crypto perpetual futures to both institutional and eligible retail customers.  These so-called Perps enable leveraged bets on the future price of crypto coins. Unlike most derivatives, they do not have an expiry date or have one years into the future.

Ongoing Regulation

Regulation is a never-ending theme in the derivatives world and 2025 was no exception. Both the EU and UK continued to make changes required by updated versions of existing legislation in the EU, this meant the EMIR REFIT and MiFiR. A key development was the requirement, effective June 25, 2025, for certain EU entities to hold an active account at an EU central counterparty, to reduce reliance on UK clearing houses. The European and Securities Market Authority also finalised technical standards on derivatives transparency and the OTC derivatives consolidated tape in December 2025.

UK regulators implemented significant changes to derivatives reporting and revised UK EMIR reporting regime, which was effective from September 30, 2024. The objective, which is to enhance transparency and strengthen reporting. include 204 reportable fields and the alignment with global standards.

There was also a continual industry push for the adoption of Digital Regulatory Reporting. and cautious exploration of Artificial Intelligence (AI) to streamline compliance workflows. The DRR translates regulatory rules from human-readable text into machine-executable logic using the Common Domain Model as its foundation.

The CDM provides a domain-specific, machine-executable representation of financial products, lifecycle events and business processes. Working alongside the DRR, market participants are being offered a fully digital, verifiable regulatory ecosystem.