Morgan Stanley made a big move in exchange traded derivatives (ETDs) last week. It hired Clark Hutchison and Bill Templer, co-heads of exchange traded derivatives at UBS, in what the FT described as “an effort to become a top tier broker in the listed futures and options industry.”
Exchange traded products aren’t doing badly. According to the Bank for International Settlements, the value of outstanding European exchange traded derivative contracts rose around 3% last year. By comparison, the value of OTC credit default swaps fell 27% in the second half.
Morgan Stanley’s enthusiasm for ETDs might be because it wants to increase its presence in existing exchange traded markets for equities, interest rates, and currencies. However, it might also have something to do with the efforts afoot to move over the counter (OTC) credit derivatives onto exchanges.
Last Thursday, the US Commodities Futures Trading Commission unveiled a package of measures related to the OTC credit derivatives market, including the proposal that, ‘OTC derivatives must move onto regulated exchanges wherever possible.’
It’s still early days. However, it seems likely that jobs will be created by the standardization of the OTC market, and that people with experience of other exchange traded products will benefit.
“People will be sucked in from other asset classes,” says Dominic Connor of P&D recruitment. “They’re going to need market makers and modelers to support them. You could see thousands of jobs.”
Julian Manfredi of Investment Solutions Consultants also foresees job creation, but in asset managers rather than banks. “Not all derivatives will be exchange traded. You’ll need a number of operating models running side by side – OTC, ETD and hybrid, and there will be a certain amount of work associated with that,” he predicts.