Earlier this summer, the FIA released a survey of participants in the European derivatives markets and the findings were an interesting mix of optimism and resignation. The results reflect a healthy industry that sees global opportunities for growth along with promising new technologies to spur innovation that also recognizes the inescapable tide of rising regulatory responsibilities and cyber risks are burdens that won’t ever subside. Here in the waning days of summer, let’s take a look at some of the specifics before sharing a few thoughts from the perspective of BornTec.

Top Takeaways from the FIA / Acuiti Survey

The survey of 100 firms that are active in Europe was conducted by Acuiti on behalf of FIA. Respondents represented the full spectrum of the industry, from professional traders and exchanges all the way through to third-party software providers such as BornTec. Several themes emerged from their responses:

• Disruptive cyber attacks are viewed as “the single greatest risk that the industry is currently facing.”
• “There is a broad consensus…that the alphabet soup of European regulations has created a major burden for the industry.”
• Most firms expect growth but think that the greatest opportunities in terms of both clients and trading volume will come from outside of Europe.
• There is a perceived trade-off between efficiency and innovation, with the sell-side prioritizing efficiency and principal trading firms and exchanges showing more interest in innovative technologies such as AI and blockchain.
• Post-Brexit, 45% of respondents believe that Paris will benefit most as a financial center, followed by 18% who said Amsterdam and 12% that selected Frankfurt.

Perspectives from BornTec

Like most industry-sponsored reports, the FIA/Acuiti survey doesn’t deliver any earth-shattering findings but if you sift the tea leaves a little bit there are some interesting takeaways beyond the headlines. Specifically, there is more of a story to tell when it comes to regulation.

On the surface, regulation emerges as a burden but there is more nuance to it than that. With respect to crypto, for example, adoption rates are being driven by sell-side firms that are “encouraged by the legal framework provided by the European Union’s Markets in Crypto Assets legislation” because it gives them greater certainty and security. And, while regulation has become such a constant that “when one framework takes effect another is usually coming down the line’, the report also states that “many also believe that regulation has strengthened the industry.”

The double-edged sword of regulation comes into sharper focus in the tradeoff between cyber risk and resilience. Fifty three percent (53%) of survey respondents named cyber risk as the biggest threat to their firm and this challenge is being met in part by the EU’s Digital Operational Resilience Act (DORA). The report states that “since the ION attack (in 2023), much attention has turned to fallbacks and redundancy systems” and DORA directly addresses this type of challenge. 

Technology has a big part to play in meeting ever increasing regulatory obligations. “Clearing brokers and other sell-side firms are prioritizing gains in efficiency from their investments in technology” as they face a squeeze between fee pressure and rising regulatory costs. As an example of this, BornTec is taking two decades of knowledge in connectivity and networking and applying it in the software layer. The result: a platform offering full order life-cycle visibility across ISVs and exchanges with powerful alerting, leading to organizational efficiency gains and regulatory cover.

Regulation may be a burden, it’s true, but is also a means to assist in the development of new  markets, as in crypto, or address pressing real world concerns as with cyber risk and the upcoming implementation of DORA. In any case, it should be abundantly clear that strong, centralized regulation, like death and taxes, is an inescapable fact of life for the derivatives markets. It’s for that reason that the optimism of market participants is tempered with a touch of resignation.

You can find the full report on the FIA website.