Electronic trend continues for equity derivatives

Across the board...

Data, stream, market prices Data, stream, market prices

Trading in equity futures and exchange-traded funds in both North America and the United Kingdom is rapidly moving to electronic platforms.


In North America, the share of futures trading volume executed electronically increased to 48% in 2011-2012 from 38% the prior year. North American hedge funds and insurance companies are now executing approximately two-thirds of their futures trading volume on electronic platforms.  In the United Kingdom, the share of futures trading volume executed electronically grew to 42% in 2011-2012 from just 24% the prior year. European hedge funds — the bulk of which are domiciled in the United Kingdom — increased the share of their futures trading volume routed through electronic platforms to 42% from 24%.


Approximately half of institutional ETF trading volume in the United States was executed electronically in 2011-2012, up from just 36% the prior year. In the United Kingdom, electronic trading more than doubled over the 12-month period to 42% of total ETF trading volume and almost doubled among European hedge funds to 61%.


In options trading a growing 20-25% of volume is executed electronically by investors in North America and on in continental Europe. However, in the United Kingdom investors use electronic execution for less than 10% of their business.

Fast-Changing Market 

While the move to centralized clearing and other factors are helping speed the transition of futures trading to electronic platforms, the global equity derivatives market is not rushing to electronic execution en masse. At a most basic level, structural features of the European market such as country/currency fragmentation and a large number of relatively illiquid small- and mid-cap issues within national markets represent hurdles to growth for electronic platforms. Those factors help explain why, in continental Europe, the share of futures and ETF trading volume executed electronically actually decreased slightly from 2011 to 2012.

“We believe futures, ETFs and – albeit to a lesser degree because of capital commitment issues – options  trading business will continue to move rapidly to electronic platforms due to a confluence of two trends,” says Greenwich Associates consultant Jay Bennett. “First, the changes to derivatives market structure that are still playing out.  Second, the economic pressure on both buy-side investors and sell-side brokers to reduce costs and cost-to-serve. In the current environment, electronic execution is a way to lower costs of execution and client coverage.”

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