US Futures Market: State of the Industry 2012

Executive Summary         
After a great couple of years for the US 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.  However, there is once again a lot to be excited about.  The first half of next year promises to be a turning point, as investors look for a rebound in market activity while regulations stemming from Dodd-Frank affect how the futures markets evolve.

Both brokers and futures exchanges are readjusting themselves to be in the best position possible as new regulations take effect.  For exchanges, they are spending additional time educating customers about product offerings and launching new products that make sense under the changing regime.  Meanwhile, FCMs are focusing efforts towards regulatory updates and helping clients transition from an over-the-counter marketplace to more exchange-listed products.  Specifically, initiatives around “futurizing” OTC markets will have the most impact on how futures brokers and exchanges collect new revenue. 

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. 

The long-term outcome of these shifts will largely depend on how firms match execution and clearing projects with business opportunities.  There will be a strong focus by customers on core competencies and measuring those results.  As demand picks up in the asset class, firms must watch closely their costs and understand this changing environment.