Regulation has been a constant theme of the derivatives market in the post-financial crisis world and while there are still a number of hurdles for the Asian industry to surmount, particularly in regard to reaching the required standards of Brussels, the game is starting to be dictated by what is key for the market's players, not bureaucrats.
The past two months have seen a number of important developments from established global exchange players such as CME and Eurex and regional firms such as the Australian Securities Exchange (ASX) which are looking to expand their clearing business in Asia. So far, their activities have created a degree of confusion – players familiar with the Australian market have expressed concern over the impact of the ASX's move to take on more risk by a mutual offset agreement with the CME. Meanwhile clearing figures Asia Risk spoke to on a visit to Singapore were bemused as to Eurex's decision to add another central counterparty (CCP) to a region that already has a high CCP-to-derivatives use ratio.
Similarly the listed sector is in a period of dynamic change, both in relation to mainstays of the region's market such as the Osaka Exchange, and with Indian firms seeking to expand their product range. But in this area of the exchange sector, market participants are more bullish.
Ravi Varanasi, head of business development at the Mumbai-based NSE, is typical of the views of local participants. While the India market has been characterised by a series of stop-start developments in recent years, Varanasi is of the opinion that the sector is set for progress.
"We would expect the substantial growth seen in equity derivatives over the past few years – of between 10% and 15% – to continue, especially as different investor classes from abroad come into the market. But it's not just equity derivatives – there is also huge potential for growth in other areas, including currency, interest rate and volatility indexes," Varanasi says.
These are bold words, but with issues such as clearing and cross-margining already well established in the listed markets, the continuing uncertainty over the shape of the over-the-counter market must only act as a boon to the commoditised derivative sector.
Aaron Woolner, editor