Acuiti’s ‘Proprietary Trading Management Insight Report’ notes a dip in profitability for proprietary trading firms between 2022 and 2023, with the majority of respondents describing their profitability as “slightly worse” or “significantly worse” when compared with the previous year or their 2023 budget.
The Q1 2024 report is based on a survey of the Acuiti Proprietary Trading Expert Network, which consists of more than 100 global senior executives.
Despite these figures, the majority rated their profitability as “about the same” when compared to an average year. This trend was seen across geographies, with both the US and Asia seeing YoY declines but the majority of respondents stating that 2023 trading was about the same as an average year.
Firms in the UK were the most likely to report YoY improvements (67%), with 40% seeing “a significantly better performance” when compared to 2022. “This is likely down to the energy and interest rates focus that many props in the UK have,” the report explained, “two asset classes that saw significant volatility in 2023.”
In Europe, on the other hand, almost half (46%) reported a worse than average year.
Changes to cost base were a considerable factor in underperformance, Acuiti says. Indeed, 45% of those surveyed said that they had seen a “slight increase in costs” over 2023, with a further third citing “significant” increases.
Part of these costs is driven by regulatory responsibilities, the report has found. More than 90% of EU firms stated that between 11 and 50% of their c-suite’s time is spent on regulatory affairs, a figure that drops to less than 60% in the UK, less than 40% in Asia and below 30% in the US. These discrepancies are expected only to worsen; “hardly any network members expected the situation to change this year, with a majority anticipating that regulation would occupy an even greater amount of their time in 2024”, Acuiti stated. The EU and UK are anticipating the most considerable rise in regulatory responsibilities.
Risks were identified around a potential lack of providers in the market, and subsequent overdependence on those servicing prop trading firms. This was reflected in the approximate third of firms upping the number of sell-side clearing providers they’ve onboarded with over the past five years, something which Acuiti suggests may reflect “an effort to increase resilience in the case of a provider dropping out of the market” alongside a desire for regional expansion.
Looking ahead, the report identified a number of key issues being considered by firms. These include an increase in the trade of zero-day options and OTC options, more activity in the ETF space following the approval of bitcoin ETFs in the US, and growing interest in exposure to new markets.
©Markets Media Europe 2024
