Two thirds of global clearing providers are predicting growth for their business in 2022, however internal risk appetite remains a key challenge, according to the first Acuiti Sell-Side Clearing Management Insight Report.
Overall, 64% of the Acuiti sell-side clearing senior executive network predicted growth in their businesses in 2022 with 28% anticipating significant growth.
Respondents in North America were the most optimistic with just over half predicting a significantly better year in 2022. By contrast those in Europe (excluding the UK) were the most pessimistic with two thirds predicting a worse year in 2022 than in 2021.
The report found that sell-side clearing providers face several headwinds with internal risk appetite, commission compression and risk weighted assets (RWA) demand versus revenue profile said to be the top challenges.
“The data for our inaugural Sell-Side Clearing Management Insight Report was gathered prior to Russia’s invasion of Ukraine, which has significantly boosted volatility across global markets,” says Will Mitting, managing director and founder of Acuiti.
He adds, “Even before the most recent bout of volatility, there were already strong underlying factors such as the expectation of interest rate increases and inflation of global commodity prices. All these factors require more sophisticated hedging strategies and risk management as well as creating opportunities for hedge funds and proprietary trading firms, all of which boosts volumes for clearing providers.”
Contained within the report is a detailed analysis of post-trade operations, commissioned by ION Markets.
This study found that senior executives had significantly strengthened the resilience of their post-trade environments since the market turmoil of early 2020. However, there was still some way to go in terms of investment.
Improved technology, both in terms of increased efficiency and increased resilience was the top factor behind the increase in resilience, selected by 38% of respondents followed by more efficient internal processes.
Senior executives are targeting greater front-to-back efficiency as a core investment strategy in order to build technology infrastructures that can scale up during times of market stress.
“The clearing industry has made significant progress since the spring of 2020 in terms of building up resilience and learning the lessons from the strain of unprecedented volumes in cleared derivatives markets,” says Will Mitting. “However, there is still some way to go for many firms as they implement multi-year investment strategies.
Our report found that, while internal efficiency is growing rapidly and key metrics such as real time allocation rates and no-touch trade processing are improving, cross industry challenges, such as a lack of common data standards and late or incorrect allocation details from brokers and clients, remain.”
He adds, “At the end of last year, the Futures Industry Association launched a blueprint to modernising trading processes, which called for, among other things, the development of common data standards and processes for allocations. The findings of this report clearly demonstrate the demand for progress in this respect.”
©Markets Media Europe 2022
[divider_to_top]
