Equity Derivatives fall into following four categories
- Flow derivatives – vanilla, listed and OTC options, variance, futures and synthetic futures, convertibles
- Delta 1 – Single Stock, Sector Swaps, ETFs, Pnotes
- Exotics
- Convertibles
An insight into the current trends in global equity derivatives markets reveals an interesting reading as under:
Business
- Listed volumes growing on back of a move to CCP for OTC products
- Focus by IB on Equities & Equity Derivatives; upgrades to sales & trading businesses & technology (FT 29-12-11)
- Significant capital flows into Asia-Pacific in areas of Sales, Research and Technology; Hong Kong and Korea
- Clients looking for online access to structured products
- Notional outstanding amounts of OTC Equity Derivatives been growing (past 2 years) in Asia ex-Japan (BIS Report 06-11)
Regulatory
- The convergence of cash and flow derivatives will be further driven by the regulatory obligation to clear over-the-counter (OTC) derivatives through central clearing counterparties (CCP).
- Cost of adapting to a CCP model & potential margins compression
- Loss of anonymity due to extension of supervisory oversight
Technology
- Improve STP process for OTC derivatives
- Increase automation of retail structured product offering
- Expansion of Electronic Trading for OTC and Structured Products
- Leverage low-touch electronic trading tools to drive scale
- Build out distribution & platform for high touch derivatives and improve flow derivatives capabilities globally
Major challenges
- Capturing corporate actions in real time
- Listing in multiple exchanges
- Complex operations of exchange houses
- Issues and operations of depository receipts
- Emerging market challenges