After a strong couple of years for the U.S. futures markets, reality has set in and business activity has slowed down. The combination of low interest rates, weak equity markets, and an overall slowing of the economy has taken its toll. But the first half of next year promises to be a turning point. The impact of an evolving regulatory environment alongside smarter and more innovative market participants is driving various strategies to embrace the asset class, and new products and market participants are entering the fray.
Both brokers and futures exchanges are adjusting to the new market realities. Exchanges are spending time educating customers about product offerings and launching new products that make sense under the changing regulatory regime. Meanwhile, futures commission merchants (FCMs)are focusing efforts on regulatory updates and helping clients transition from an over-the-counter marketplace to more exchange-listed products.
Yet one of the harsh realities of the new world is that it favors different winners than in the past. Regulatory scrutiny of traditional FCMs, including how they oversee and use client assets, is creating pressure on how they earn clearing and net interest income. Meanwhile, a more agency-focused business can create new opportunities for exchange clearinghouses, custody banks, and FCMs that provide customers with services that replicate the environment customers had previously known (minus the greater risks).