Future options

Tomorrow’s derivatives market looks likely to shift away from exotic products to focus more heavily on centrally cleared vanilla trades. Dealers hope to see a big jump in volumes, which will offset a smaller decline in margins. They also have an eye on new opportunities. But a happy ending is far from certain.

Dealers like to describe reform of the over-the-counter derivatives market as an evolutionary step. In fact, it’s an evolutionary leap – a sudden transformation that is creating huge uncertainty about future volumes, profit margins and competition.

At the heart of the reform agenda is a major shift towards central counterparties (CCPs) that will sit in the middle of formerly bilateral trades