Facing
intensifying rivalry and fee pressures, major players in listed derivatives
markets are ramping up investment in front-office technology to bolster
operational resilience and gain a competitive edge, according to a new report by Acuiti.
Acuiti’s study titled “State of the Market: FCMs Front Office,” produced in partnership with Broadridge, surveyed senior executives from 38 leading futures commission merchants (FCMs). It reveals that while competition
in clearing has remained relatively stable over the past five years, trading
and execution have seen a significant uptick in rivalry and fee compression.
Currently,
the heightened competition stems primarily from other sell-side firms. However,
the landscape is expected to shift as non-bank liquidity providers expand their
reach into listed derivatives markets.
Source: Acuiti
In
response, FCMs prioritize customer service and channeling more resources into
front-office technology upgrades, with around half of firms increasing their
tech budgets this year. The investment is focused on two core areas:
consolidation and efficiency, and operational resilience.
“Competition
has been intense among sell-side execution in derivatives markets, resulting in
significant fee compression,” said Ross Lancaster, the Head of Research at
Acuiti. “With little room left to cut fees, FCMs are seeking to
differentiate themselves through customer service and technology. Investment is
therefore being focused on both creating efficiencies and enhancing the
offering to clients.”
Source: Acuiti
Consolidation and Data
Integration Fuel Efficiency and Customer Service Goals
More than
half of the FCMs plan to consolidate front-office order management system (OMS)
technology across asset classes. Budgets are also being allocated to build
backup processes to address operational resilience concerns and meet the
upcoming Digital Operations Resilience Act (DORA) requirements in the European
Union.
The study
further highlights that data integration between systems and technology remains
a key challenge for firms as they strive to improve straight-through processing
and reduce manual intervention in the trade lifecycle.
Source: Acuiti
“Front-office
investment for FCMs is providing them with a competitive edge in an
increasingly competitive marketplace,” said Ray Tierney, President of
Broadridge Trading and Connectivity Solutions. “This study found that FCMs
were seeking to achieve operational efficiencies through the consolidation of
technology stacks and to compete on their levels of customer service.”
Tierney
emphasized that overcoming data fragmentation between systems is central to
both goals, enabling FCMs to provide more insight to clients while enabling
more efficient operations.
Other Acuiti Studies
Acuiti
regularly researches financial and derivatives markets. At the end of November
2023, the company showed that proprietary trading firms worldwide are gearing
up to expand their foreign exchange (FX) trading activities and increase their
investment budgets for 2024.
The report
revealed that 45% of FX trading firms are planning significant enhancements in
their operations within this asset class, with a strong interest also observed
in equity options, indicating a bullish outlook for 2024. In contrast, cash
equities are witnessing a decline, particularly in Europe, where many firms are
looking to reduce their stakes.
Furthermore,
Acuiti published a report last week highlighting a significant shift in the European
retail FX/CFDs industry. According to the study, 92% of companies surveyed
express concern over their future amidst growing regulatory pressures.
The report
notes that European retail brokers must now reveal the percentage of clients
who incurred losses trading CFDs in the past year, generally between 70% and
80%. Research indicates that the average retail investor lost €2,680 trading
CFDs between June 2017 and June 2018, a finding corroborated by more recent
studies from Finance Magnates Intelligence.
Facing
intensifying rivalry and fee pressures, major players in listed derivatives
markets are ramping up investment in front-office technology to bolster
operational resilience and gain a competitive edge, according to a new report by Acuiti.
Acuiti’s study titled “State of the Market: FCMs Front Office,” produced in partnership with Broadridge, surveyed senior executives from 38 leading futures commission merchants (FCMs). It reveals that while competition
in clearing has remained relatively stable over the past five years, trading
and execution have seen a significant uptick in rivalry and fee compression.
Currently,
the heightened competition stems primarily from other sell-side firms. However,
the landscape is expected to shift as non-bank liquidity providers expand their
reach into listed derivatives markets.
Source: Acuiti
In
response, FCMs prioritize customer service and channeling more resources into
front-office technology upgrades, with around half of firms increasing their
tech budgets this year. The investment is focused on two core areas:
consolidation and efficiency, and operational resilience.
“Competition
has been intense among sell-side execution in derivatives markets, resulting in
significant fee compression,” said Ross Lancaster, the Head of Research at
Acuiti. “With little room left to cut fees, FCMs are seeking to
differentiate themselves through customer service and technology. Investment is
therefore being focused on both creating efficiencies and enhancing the
offering to clients.”
Source: Acuiti
Consolidation and Data
Integration Fuel Efficiency and Customer Service Goals
More than
half of the FCMs plan to consolidate front-office order management system (OMS)
technology across asset classes. Budgets are also being allocated to build
backup processes to address operational resilience concerns and meet the
upcoming Digital Operations Resilience Act (DORA) requirements in the European
Union.
The study
further highlights that data integration between systems and technology remains
a key challenge for firms as they strive to improve straight-through processing
and reduce manual intervention in the trade lifecycle.
Source: Acuiti
“Front-office
investment for FCMs is providing them with a competitive edge in an
increasingly competitive marketplace,” said Ray Tierney, President of
Broadridge Trading and Connectivity Solutions. “This study found that FCMs
were seeking to achieve operational efficiencies through the consolidation of
technology stacks and to compete on their levels of customer service.”
Tierney
emphasized that overcoming data fragmentation between systems is central to
both goals, enabling FCMs to provide more insight to clients while enabling
more efficient operations.
Other Acuiti Studies
Acuiti
regularly researches financial and derivatives markets. At the end of November
2023, the company showed that proprietary trading firms worldwide are gearing
up to expand their foreign exchange (FX) trading activities and increase their
investment budgets for 2024.
The report
revealed that 45% of FX trading firms are planning significant enhancements in
their operations within this asset class, with a strong interest also observed
in equity options, indicating a bullish outlook for 2024. In contrast, cash
equities are witnessing a decline, particularly in Europe, where many firms are
looking to reduce their stakes.
Furthermore,
Acuiti published a report last week highlighting a significant shift in the European
retail FX/CFDs industry. According to the study, 92% of companies surveyed
express concern over their future amidst growing regulatory pressures.
The report
notes that European retail brokers must now reveal the percentage of clients
who incurred losses trading CFDs in the past year, generally between 70% and
80%. Research indicates that the average retail investor lost €2,680 trading
CFDs between June 2017 and June 2018, a finding corroborated by more recent
studies from Finance Magnates Intelligence.
