04.17.2020

Derivatives Volatility Puts Strain On Sellside Back Offices

The unprecedented volatility across global derivatives markets has put a major strain on sellside back office operations, the latest Acuiti Derivatives Insight Report has found.

58% of sellside respondents reported major issues with back office operations with risk management systems also coming under pressure.

Volatility relating to the continued global spread of the coronavirus continued throughout March with volumes on major derivatives exchanges hitting all time highs.

The high volumes led to a second month of strong revenue growth across the derivatives industry with 78% of respondents reporting higher year-on-year revenues.

However, there were increasing signs of strain as 14% of respondents reported significantly lower revenues relating to trading losses and operational challenges from the shift to working from home.

In addition, sentiment measured by the Acuiti Derivatives Sentiment Index fell to its lowest levels since the index launched in April 2019 with just 28% of respondents predicting an increase in revenues over the next three months and 18% predicting significant declines.

“The derivatives industry is playing a vital role in managing volatility and enabling the transfer of risk during these immensely challenging times,” said Will Mitting, managing director and founder of Acuiti.

“Higher volumes are leading to increased revenues for many in the market. However, as well as the great concern over the wellbeing of employees in the here and now, we are picking up growing concerns about what comes next in this crisis with the potential return to central bank domination of markets and long-term low interest rates.”

Coronavirus response

This month’s report contains an in-depth analysis of the operational response the spread of the coronavirus and concerns over its long-term impact on markets.

Acuiti asked respondents to rate their levels of concern across a range of metrics and found that, for most respondents, the impact of the coronavirus on staff was the major concern.

For banks and non-bank FCMs, client ability to meet margin calls was also a major worry in the medium term. Brokers were also concerned over the solvency of clients and liquidity, a concern shared by non-bank FCMs.

For proprietary trading firms, the major concern was the solvency of other prop groups as well as liquidity. Buyside firms were most concerned by increased margin requirements.

The monthly Acuiti Derivatives Insight Report is compiled from submissions from Acuiti’s network of over 550 senior executives in the global derivatives markets.

To apply to join the Acuiti network and get the opportunity to take part in and receive a free copy of the Acuiti Derivatives Insight Report, visit acuiti.io

Source: Acuiti

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