There has been an “explosion” of retail investors in the cleared derivatives space, according to Francesco Margini, chief product officer for cleared derivatives at ION. Speaking to BEST EXECUTION, he added that although the phenomenon is most noticeable in the US, “we believe that the rest of the world is going to follow suit—even if it’s not to the same extent”.
ION today announced an expansion to its partnership with Sigma Broking, which will allow Sigma clients to trade listed derivatives on the London Metal Exchange (LME) using ION’s XTP Execution (XTP-E) suite. Currently, Sigma uses ION’s post-trade solutions for the automation of its back- and middle-office operations.
“I would say the move towards listed derivatives has come from OTC markets, with all the swaps execution facilities now in place,” Gary Pettit, CEO of Sigma Brokerage, told BEST EXECUTION. “It certainly gives more transparency and, in a lot of cases, it’s cheaper to use.” The brokerage and execution service provider specialises in base metals, hedge funds and portfolio management, with a client base of investment banks, producers and consumers worldwide.
The growth of retail investors in the US has been driven by the fact that the country is the “largest, deepest, most liquid market when it comes to stocks”, Margini said, with many companies that have high growth potential listed on its exchanges.
Europe is lagging behind the US for a number of reasons, he continued. Fragmentation across the continent, an proliferation of exchanges and a lack of intermediaries to provide market making and ensure liquidity have prevented growth in cleared derivatives, and the cost of trading is significant.
Through its partnership with Sigma, ION provides automated services for retail and institutional firms routing orders to the exchange. The XTP-E suite is designed to facilitate efficient and accurate execution, support advanced risk management and allow for future business growth, the company says.
“We try to minimise barriers, but as a technology vendor we cannot resolve issues around the European market structure. It’s for other types of market actors to address and tackle these issues,” Margini commented.
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