US Futures Market: State of the Industry 2013

Author(s):
Matthew Simon
Date:
February 20, 2013
Research Type:
Data Driven Report
Executive Summary

Investment activity improved slightly in the fourth quarter, but similar to the rest of the year, futures volumes remained steady throughout 2012. Eleven out of the twelve months surpassed 200 million contracts traded while there was not a single month when volumes topped the 300 million mark, as seen in March and August of 2011. Yet, only the summer slowdown during July saw volumes dipping below 200 million contracts.

TABB Group expects looming OTC market regulations to boost interest rate futures volumes in the first half of 2013 and beyond. To date, interest rate swap futures have been averaging close to 2,000 contracts per day. At that pace, it will hardly make a dent in TABB’s projected 12% growth rate for IR futures. Rather, IR volumes will increase significantly as interest rate volatility returns and OTC swap volume migrates to like products in the US futures markets. We also believe greater activity in the underlying cash equity markets will carry over to the equity futures markets. In our January report, “US Equities Market: 2013 State of the Industry”, we predicted that cash equity volumes would increase by 6% in 2013. Similarly, equity futures volumes will continue to rise as the ETF market grows.

As demand increases in futures markets, both brokers and exchanges are realigning business models. For exchanges, they are spending additional time educating customers about product offerings and launching new products that make sense under the changing regime. Meanwhile, futures commission merchants (FCMs) continue to focus efforts on meeting regulatory mandates and helping clients transition activity from an over-the-counter marketplace to an exchange-listed trading environment.

The long-term outcome will largely depend on how firms match execution and clearing projects with business opportunities. Specifically, initiatives around “futurizing” OTC markets will have the greatest impact on how futures brokers and exchanges collect new revenue. It is our belief that competition amongst FCMs will become top-heavy. There will be a strong focus by customers on core competencies and measuring results. Amongst the differentiators will be the ability to provide services that support clients across both futures and other asset classes.

Areas of Interest
  • Derivatives
  • Futures
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