At FIA’s forum in Paris last month, market participants discussed the innovations, initiatives and challenges shaping efforts to make the trading and clearing of derivatives more resilient and efficient.
The increase in retail trading in global derivatives markets proved a recurring theme on panels throughout the day. While growth in retail participation is fuelling product innovation, speakers on the Making Markets More Efficient panel said it could also test market resilience.
Retail investors have increasingly turned to instruments such as zero-day-to-expiry options, micro contracts, crypto derivatives and event contracts – spurred by greater access to digital trading platforms and improved investor education, said Helen Hartwell, global head of exchange-traded derivatives strategic development and market structure at UBS.
“With continued volume growth, the topics of capacity, scale and automation in our markets are as important as ever,” Hartwell said.
Retail demand is also driving calls for 24/7 trading, which would require a “significant transformation” of the post-trade ecosystem to ensure markets remain robust and resilient in a continuously operating environment, she added.
Holding to core principles
Helen Gordon, global head of derivatives clearing at JP Morgan, noted that derivatives market infrastructure has proven highly resilient through multiple crises in recent years. But as regulators increase their support for innovation, she cautioned against losing sight of the fundamentals that underpin the market’s resilience.
As new products and models emerge, such as event contracts, perpetual futures and disintermediated clearing models, maintaining core principles will remain essential, Gordon said.
“We have to stick to the foundational principles: protection of customer assets, adequate margins, and ensuring clearing entities are appropriately capitalised and have the necessary financial resources,” she said. “If we stick to these core principles, we can embrace the next cycle of innovation while maintaining our reputation for sound and resilient markets.”
Gordon also underscored the importance of regulators striking the right balance between addressing risk and promoting innovation when designing new rules for the cleared derivatives markets. “If regulation isn’t appropriately calibrated, resources – whether that’s technology, people or budget – get diverted away from solving genuine issues and client needs,” she said.
As the pace of technological change accelerates, Gordon added, firms must have the capacity to focus on solving emerging challenges and opportunities. “We need the resources and mental bandwidth to figure out how to apply new technologies responsibly and effectively.”
Markus Schmitz, head of cleared derivatives at FIS, noted that while many regulatory frameworks have achieved their intended goals, they have often introduced added layers of administrative, technological and operational complexity. “Those are precisely the kinds of burdens the industry is trying to avoid in order to keep markets running efficiently,” he said.
Tokenisation moves toward adoption
The panellists agreed the industry is edging closer to broader adoption of tokenisation, after years of experimentation with digital ledger technology.
“Recent developments, including the Commodity Futures Trading Commission’s initiative to explore tokenised assets as collateral, signal a shift towards broader adoption,” said FIS’ Schmitz. With firms such as JP Morgan pioneering live use cases in Europe, the sector is expected to accelerate its move in this direction, he added.
He cautioned, however, that fragmentation remains a challenge. “Introducing standards too early, while technology and workflows are still evolving, can be premature,” Schmitz said. “But as tokenised collateral systems mature, establishing core industry standards will be essential to ensure efficiency and interoperability.”
The benefits of such standards are already evident in the futures clearing industry, he said. Industry standard bodies such as the Derivatives Market Institute for Standards (DMIST) have helped firms boost efficiency by providing clear, consistent standards across the clearing ecosystem.
JP Morgan’s Gordon added that the industry has now reached a point where tokenisation can move from theory to practice.
“The environment has really changed – we’re ready for tokenisation,” she said. “We may have been a little early to that party before, but now the party has started.”
She noted that JP Morgan’s tokenisation initiative is already live with one client and Eurex in Europe, using a privately commissioned HQLA-x blockchain to move securities collateral within an Individual Segregated Account model. The initiative, she explained, stemmed from the operational challenges of moving securities collateral and the need to manage client-specific collateral under the ISA framework. “It’s also about addressing some of the transit risks for clients,” she said.
In this model, the securities themselves continue to be issued in their traditional form and held in custody by a trusted third party, Clearstream International. At the same time, the collateral movements occur on the digital ledger. “That enables greater speed and transparency,” Gordon said.
She emphasised, however, that new technologies inevitably introduce new risks. “We do need to evaluate cybersecurity risks, understand whether there is settlement finality and ensure that smart contracts are reliable in all scenarios,” she said.
Despite these challenges, Gordon said the potential benefits are significant – particularly as markets move towards 24/7 operations and products such as zero-day-to-expiry options. “In that kind of environment, we need the ability to move collateral in near real time and outside traditional payment rail cycles,” she said.
A European perspective
On the topic of tokenisation in Europe, Emilie Rieupeyroux, head of market strategy, cash equity and data services at Euronext, noted that “there has been a lot going on behind closed doors, a lot of experiments.” She highlighted that European regulation has provided a foundation, pointing to both the Markets in Crypto-Assets Regulation for crypto assets and the DLT Pilot Regime for the tokenisation of standard assets. While the pilot regime “is not an absolute success” and currently includes only four regulated players since its launch in 2023, it nonetheless offers “legal clarity that any institutional player in the space is willing to have.”
Rieupeyroux also emphasised the scale of experimentation in the region. “The French industry has been continuously collaborating with the French central bank on central bank digital currencies,” she said, underlining years of ongoing work. Yet, she noted that this has not fully taken off commercially: “The business case in some instances is not super clear. When the business case is compelling, it will take off,” she said.
FIA forums provide an opportunity for regulators and the industry to get together to discuss issues affecting their markets and for participants to engage in productive conversations. Visit FIA Flickr to see photos from FIA Forum Paris.
