RiskTech Forum

Numerix: The Case for Electronification in OTC Markets

Posted: 1 October 2017  |  Source: Numerix

This article explores the benefits of growing adoption of electronic RFQ platforms, for structured and exotic products.

The last decade has seen electronic trading accelerate rapidly. In just a two-year period, the foreign exchange market alone saw a 71% rise in electronic trading, according to a Greenwich and Associates 2014 report, and statistics like this are spread across a broad range of asset classes, including derivatives. This growth is being driven largely by three factors: the drive for increasingly illusive profitability; technology advancements; and regulations driving tougher standards on transparency, execution and reporting.

ICAP’s 2016 decision to spin off the firm’s voice broker division and focus on electronic trading is endemic of many signals that electronic transformation of the capital markets is reaching a new point in its evolution—a significant expansion into the OTC arena. A remarkable shift given there was a time when most traders would have thought the electronic trading of OTC derivatives would be impossible. The incentive? The real potential to capture operational efficiencies by shifting these desks into a flow business model, allowing banks to focus key staff on more critical customer service capabilities and opening up the capability to scale additional volumes and revenues.

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