The need for regulatory simplification and a growing trend of product and technology innovation were among the topics discussed during a panel on challenges and opportunities in the European derivatives markets at the FIA Paris Forum on 25 September.
Thomas Texier, group head of clearing at non-bank FCM Marex, warned that regulatory burdens are hindering growth in the cleared derivatives industry in Europe, with investment flows shifting to other regions.
“We've seen a trend of clients moving away from Europe into new jurisdictions, such as Dubai or Abu Dhabi. These jurisdictions are growing rapidly, and they're making it easier for firms with their lighter regulations,” Texier said. “It’s concerning to see the significant amount of flow moving out of Europe. Too much regulation in Europe is hampering growth. It used to be traders and high earners who moved for the lower tax rates, but now we are seeing headquarters moving to these jurisdictions.”
While regulatory simplification is a central pillar of the European Commission’s new competitiveness agenda, more harmonisation is also needed, particularly when it comes to taxing financial investors, said Charlotte Alliot, Euronext’s head of financial derivatives, equities and fixed income.
“There are fiscal risks and complexity when you invest in Europe. For instance, some countries have a financial transaction tax, some don't. France levies a withholding tax on dividends, which is extremely complex to navigate and to understand when it applies, and this is detrimental to the markets. What we need in Europe is a common and harmonised fiscal policy where, for instance, all dividends are taxed the same way, making it easier to navigate.”
Maylis Dubarry, managing director and global head of prime services products at Société Générale, said that stricter regulations are also putting European clearing firms at a disadvantage compared to US peers.
“Taking the example of digital assets, EU regulation on this front is stricter and imposes a prudential and regulatory framework that requires more margin and more requirements from our clients, which is not what we want. Our clients are keen to have a clearing firm that is a one-stop shop, whether that involves accessing fixed income derivatives, commodities derivatives, or bitcoin derivatives. This is what clients expect from us, and that's what we really want to be good at. We need to have a similar playing field to our US peers.”
Digital assets and product innovation
On the opportunity side, panellists pointed to rapid technological and product innovation in the derivatives markets.
“This is one of the most exciting times we've seen in the clearing space because of product innovation. We are seeing a lot of development around retail investors accessing markets – this is a very big theme, especially if you look at the US market with prediction markets. 0DTE options are essentially a retail market. You see ETFs, and of course, digital assets,” Texier said.
“Digital assets was a retail market at heart. Previously, they resided in an OTC unregulated world, but now people want to trade them properly in regulated markets. This is great for our industry, and it will lead to interesting technological advancements. Digital assets is probably the thing that excites us the most at Marex, because there is a true institutional demand for these products, which is driving a lot of innovation.”
Texier noted that investors increasingly want to trade on weekends, sparking discussions about 24/7 markets, margin management, stablecoins and tokenisation.
“Stablecoins are the fastest way to market, because changing the Fed window, or any payment window, is not going to happen quickly,” he said. “The advent of moving collateral in the form of stablecoin or tokenised collateral is upon us. It's not in the future; it's going to happen. We hear this in almost every conversation we are having with clearinghouses globally. We are seeing a lot of innovation in the market now, and it’s exciting.”
Patrice Lacourarie, head of derivatives clearing services at HSBC Continental Europe, added that for tokenisation to scale, operational pain points must first be addressed. More innovation in this area would be welcome, he said.
Optimism for retail
The panel also discussed retail as a major growth opportunity. Euronext, for example, aims to become Europe’s retail exchange for derivatives. Last month it launched mini-sized cash-settled futures on European government bonds on its Derivatives Milan market, including 10-year and 30-year Italian BTPs.
“This expansion into the fixed income derivative space is a major innovation for us, and we want to expand this range,” Alliot said. “We launched mini bond futures on our Italian market last week and got immediate adoption. Italian retail investors like to invest in the BTP. When there is an issuance of the BTP, there is advertising on television and in the newspapers, so they are accustomed to supporting Italian debt and have a natural interest in fixed income.”
While designed primarily to meet the needs of retail investors, the instruments also provide asset managers and institutional investors with the granularity required for hedging or taking exposure to government bonds, she added.
Alliot also highlighted the importance of financial education in building retail participation. Euronext launched a retail education programme last year across five countries, tailored to local investor preferences.
“In Europe, there is not one type of retail person. For instance, in Germany and France, investors place a greater emphasis on structured products. In Italy, it is fixed income, while in the Netherlands, it’s more on options. This is where the role of an exchange in retail education is key,” she said.
“Euronext is an aggregation of local exchanges, and we have unique ties with the local trading community. We believe it is our duty to educate retail investors as we aim to build the future of the capital markets. It might not give us two-figure percentage growth, but it's a commitment that we have decided to take for the long term.”
FIA will continue its European events with a forum in Brussels on 4 November. The forums provide an opportunity for discussions to take place between regulators and the industry, and for participants to engage in productive conversations about the issues affecting their markets.
Visit FIA Flickr to see photos from FIA Forum Paris.
