Traders Move Listed Derivatives After Brexit
Almost half of respondents to the monthly Acuiti Derivatives Insight survey have backed a ban on payment for order flow in the US markets with 29% saying it should not be banned.
The practice of Payment for Order Flow has come under scrutiny over the past month as the business operations of retail trading platforms has come under scrutiny in the wake of the GameStop trading phenomenon.
The Acuiti survey of senior executives from across the global derivatives market found that 49% backed a ban with 29% opposed and the remainder unsure.
In the same survey, just 16% of respondents said they thought that the increased trading activity by retail traders in certain stocks and derivatives instruments that hit international headlines last month posed a significant systemic threat to the wider market. 42% thought it posed a “slight threat”.
In terms of whether the trading activity and communications on Reddit to encourage position taking constituted market abuse, 26% said it definitely did, 55% that it possibly did and 19% that it definitely did not.
When asked what action should be taken by regulators, most respondents said that no action should be taken and that the activity constituted a viable part of a free market.
Those that did call for action suggested sanctioning the messageboard Reddit over market infrastructure such as the trading platforms, such as Robinhood.
Some respondents however argued that the trading platforms should be subject to higher margin or capital requirements to reduce systemic risk emanating from activities on their platforms.
The Acuiti Derivatives Insight Survey is a monthly check-in on hot topics, revenues and outlook from the global derivatives markets drawn from responses to a survey sent to Acuiti’s Elite Network of hundreds of senior executives from across the market.
The February report found that clearing bank revenues were under pressure in January as lower volatility across most futures markets combined with reduced income from interest on margin payments.
Overall revenues were subdued in January except for certain markets, such as US equity options, which drove revenue increases.
Will Mitting, founder and managing director of Acuiti, said: “Greater scrutiny of the payment for order flow model might well be the lasting legacy of cacophony of commentary on the activities of certain retail traders in the US last month.”
The February Insight Report also found evidence that, as a result of Brexit, traders were beginning to shift listed futures and options activities in addition to the well-publicised equity and swap movements seen since January 1.
To download the report, visit: https://www.acuiti.io/download-the-acuiti-february-insight-report/
Political relations between the UK and the Biden administration will be key in the coming months.
US SEFs have between 20% and 40% of European derivatives trading.
The UK has granted equivalence to the EU in some areas but the EU has not done likewise.
The UK government has agreed equivalence with Switzerland.
Trading in Swiss equities on UK exchanges can now resume.