Recap: Derivatives Forum Amsterdam 2023

The new European Horizon

Increasing the volume of derivatives trading remains a core issue in Europe. But the difference in the conversation at Derivatives Forum Amsterdam 2023 was how market participants now believe that Europe is in a stronger position to deliver on this goal.

Cross Border, Cross Asset, Cross Product

Current European market challenges extend far beyond just the derivatives markets – delivering stronger support for the Capital Markets Union is once again front and center for Brussels policymakers. Yet overcoming the obstacles to delivering greater union across fragmented member states may also prove Europe’s greatest strength in delivering future growth.  

The complexity of the European market structure and diversity of interpretation across different member states requires innovation in trade creation rather than just the technology to trade. US markets have a single rulebook and marketplace. European fragmentation necessitates rather improving connections – not just across policy, taxation and regulation - but across asset classes and product lines – and between all market participants.

The continued trend towards multi-level, multi-asset class trading requires a rethink of how to connect with all providers of liquidity across multiple product streams. Increased fragmentation in the European OTC derivatives market has already necessitated greater use of technology to find liquidity and verify pricing. Technology providers are repositioning as gatekeepers to liquidity, aggregators of streaming pricing but with the benefit of being able to transact within a regulated marketplace backstopped by a CCP.

Maximizing the Growth

On the final panel, the debate centered on how the industry can best maximize the growth opportunities available today. The key to success remains the market makers' ability to adapt to investor interest and meet that demand through the timely provision of liquidity. However, European retail investor interest is still underdeveloped relative to the US options market. As the investor trend evolves to shorter-dated options to hedge against specific events, the panelists believe this will create additive volume for European Markets, in particular the recent interest in commodities.

The panel noted the success of the recent introduction of smaller notional contracts like micro futures as well as options and Bitcoin futures to provide more suitable products for retail investors. The EURO STOXX 50® daily options have already crossed 400,000 contracts in less than two months. The trend to shorter date options also gives investors a higher granularity of potential events to trade against to manage risk better.

Europe: The New Horizon

Globally, markets are beset with geopolitical tensions, an increasingly aging society, tight labor markets with higher wages and higher inflation. The necessary shift to the Green Transition will continue to exacerbate inflationary measures in the short term while the West is weaned off the cheapest and most efficient means of supporting the economy. Yet, with US markets priced to the max, the panelists believed that financial markets still underestimate Europe. 

Capital Markets remain essential to build private wealth. Unlike the US, European pensioners are still reliant on institutional pension schemes. For an aging continent, moving to individual wealth creation will be the first firm step to redefining the European Derivatives horizon. Join us to discuss this debate further at the Derivatives Forum Frankfurt.