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Institutions Cautiously Optimistic on European Derivatives

Despite modest declines in trading volume from the first half of 2009 through mid-year 2010, about 55 percent of European institutions predict their usage of flow equity derivatives will increase in 2011.

European institutions are cautiously optimistic about equity derivatives trading in 2011, despite a modest reduction in equity derivatives trading volume from mid-year 2009 to mid-year 2010, according to Greenwich Associates study announced today.

Results of Greenwich Associates’ 2010 European Equity Derivatives Study suggest that average commission spend from trading options products declined by approximately 4 percent among European institutions from the first half of 2009 through the first half of 2010. A report released today also names JP Morgan, Deutsche Bank, SG Equity Derivatives and BNP Paribas as the 2010 Greenwich Leaders in Equity Derivatives Trading.

According to the research firm, the typical European user of equity derivatives paid $5.2 million in brokerage commissions on trades of equity options in the 12-month period ending June 2010. Based on these commission averages, Greenwich projects a total spend of $1.2 billion in options commissions fro the 338 institutions comprising its research universe in European equity derivatives. The typical institution paid $3 million in brokerage commissions on futures trades, an average that was down 12 percent from the previous year.

“The modest decline in options trading spend among European institutions over the past year reflects the sharp slowdown in trading activity in the second quarter of 2010 following what was widely regarded as a strong start to the year,” explained Greenwich Associates consultant Jay Bennett, in the release. “The year-to-year drop in options commission flow was actually much more pronounced in the United States, where we estimate commission spend fell about 20% from 2009 to 2010.”

Meanwhile, the average notional volume of trades of structured equity/securitized products executed by European institutions in the Greenwich Associates research universe increased by about 5 percent to $165 billion from the end of the first half of 2009 to the same period in 2010.

Looking ahead, approximately 55 percent of European institutions predict their usage of flow equity derivatives products will increase in 2011, with 31 percent predicting no change in activity and the remainder predicting a decline in usage. In structured equity products, institutions are more mixed in opinion about market direction for next year, with about 40% of institutions expecting to increase their usage and a comparable share expecting no change. Almost 20 percent of institutions expect their usage of structured equity derivative products to decrease “somewhat” (as opposed to “significantly”) in 2011.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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