Enhanced data access can support greater opportunities in 2024 Chapter two of our survey testing the temperature of the global OTC derivatives market reveals high levels of optimism that innovation can be a game changer for the space. However, more expansive data – including centralized information systems – are needed to unlock the full potential of the market.
“Automation would definitely help with speeding up settlements, data processing, and even communication between buyside and sell-side.” – Buyside respondent, UK
With the OTC derivatives market anticipating significant growth, chapter two of our report, ‘Enhance and advance: What’s next for the OTC derivatives market in 2024’, takes a deep dive into what market players think is needed to enhance market operations.
Respondents to our survey of over 300 market participants – from both the buy and sell-sides and across key global markets – reveal high levels of confidence that firms have the tools they need to support high-functioning markets. But gaps in the market still need to be addressed.
Centralised data platforms are needed
In general, most players have access to expanded market data and indices to support benchmarking and uncover opportunities. Despite this, the majority of participants – especially banks and investment companies – want to see more indices across the board.
Access to considerably greater levels of data would further support trading, facilitate compliance in an increasingly regulated market, and enhance risk management strategies. This need for further data is particularly felt on the buyside, especially among hedge funds and asset managers.
In particular, participants want access to unified data platforms that can centralize market data, provide more effective trade insights and help expand the OTC market beyond current levels of engagement.
In the Asia Pacific (APAC) region, for example, more work is needed to give the market greater access to indices that go beyond the large datasets that currently dominate the market. At present, players in APAC have to rely on large indices that don’t provide visibility to more localized market opportunities. This acts as a barrier to entry to the OTC market from operators already present in the region. Access to more granular data could, therefore, further expand engagement with this promising sector; a sector that continues to grow in relevance as macro volatility drives interest in this particular asset type in order to hedge risk.
AI and automation can unlock market potential
As seen throughout the report, there are discrepancies in market perspectives between the buyside and the sell-side, as well as across jurisdictions. In general, the US, UK and Europe have higher levels of confidence in market functionality and are best equipped to take advantage of innovations in the market. The sell-side also feels confident that they have access to effective tools and data. However, more work is needed to build confidence on the buyside, despite the market being seen as an easier place in which to operate in recent years.
Part of this improved outlook has been powered by advancements in artificial intelligence (AI) and automation, which have already made big strides in supporting enhanced market functionality.
AI has done much to transform the market, and empower operations, from analytics and forecasting to compliance and enhanced trade execution strategies. It can play an important role in giving market players a greater competitive edge, while drive greater efficiencies and helping build confidence that participants can effectively navigate the markets. Indeed, this is reflected in the report, where it is encouraging to see generally high levels of confidence among participants in their ability to leverage data to power AI and automation tools. According to one buyside respondent, “Automation would definitely help with speeding up settlements, data processing, and even communication between buyside and sell-side.”
But in order to realise the full potential of AI and automation, there is a desire for even greater data capabilities, and a need to plug knowledge gaps in order to operationalize this data. Another respondent points to the need for highly educated data specialists in the OTC trading space; a need that many firms are addressing with an enhanced focus on recruitment in this area where internal capabilities and not presently sufficient.
Empowering market participants
Chapter two of our report paints a picture of a market poised for significant growth. Generally high levels of confidence among participants is a promising indicator that greater opportunities can be unlocked in 2024 and beyond. Central to unlocking that potential will be greater access to data and enhanced market infrastructure. Read the report for more insights.
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