Challenges Ahead for a Healthy Derivatives Industry

Blogs / Conferences & Events / by: Andy Jennings / June 26,2023

FIA IDX in London is one of the bellwether events for the international trading community, and the 2023 edition shone a spotlight on an industry that is experiencing strong growth while simultaneously dealing with the challenges brought along by rising volatility and outside threats like cybercrime. The record 1,100+ attendees attest to the health of the industry while the topics discussed highlighted the many challenges that must be faced in order to maintain that strength. In particular, panels on the future of markets, operational efficiencies, and operations resilience highlighted key areas that are attracting the attention and resources of participants.

Top Challenges for the Derivatives Trading Industry

The derivatives industry is seeing robust growth but that growth presents challenges that must be met. Three panels, in particular, brought these challenges into focus:

  • The future of markets: After years of low-interest rates and relatively quiet market volatility, risk is back. As a result, there is a heightened interest in improving real-time risk management in order to gain an understanding of a true risk management profile. To achieve the best results and drive innovation, collaboration is needed across the technology and operations stack. 
  • Operational efficiencies: Operations is the backbone that drives risk discipline and it requires good data in order to map the risk landscape. There are automation gaps in derivatives markets that must be addressed and new technology approaches, including low code / no code automations, are assisting in these efforts. More standardization of data from exchanges and CCPs is needed because high-quality, reliable data is a necessity to be able to grow safely at scale.
  • Operations resilience: The ION Post Trade Processing ransomware incident makes it plain that it’s not a matter of “if” but “when” a cyber event will affect an enterprise’s operations. A top-down understanding of infosec is required, with constant training around a response plan required. Collaboration, internally and with partners and competitors alike, is key and the industry is making great strides in these areas.

Building on Trust in International Markets

Trending topics get the headlines but it’s the nuts and bolts issues that most accurately reflect where the hard work in the derivatives trading industry is being done. Crypto was the buzz topic in recent years, and that focus has now shifted to AI, but the lessons learned from the systemic stresses encountered during the Covid 19 pandemic and, more recently, with the ION Trading ransomware event indicate where the difficult challenges are being met. 

In his opening remarks at IDX, FIA President and CEO Walt Lukken emphasized trust as a key to industry success. Pointing out that trust is “gained over a long time but lost in a moment”, Lukken noted that “in global derivatives markets, we need each other more than ever to overcome challenges, understand our differences, and find collective solutions that benefit our markets – and the global economy as a whole.” Trust is the essential foundation on which success is built. In that regard, the international derivatives industry is in very good shape.

BornTec is a Chicago-based technology solutions firm that provides tools to support surveillance, risk, compliance, and regulatory reporting functions in financial markets. Contact us for a demo of our data resilience solutions.