UK banks’ export earnings on international derivatives trading totalled £10bn in 2011, according to TheCityUK’s Derivatives Report. This is over a fifth of the UK’s total trade surplus in financial services of £46.7bn, demonstrating the importance of the derivatives market to UK exports and economic growth.
However, TheCityUK report also highlighted concerns over the potential impact of regulatory reform on the derivatives market. The derivatives industry has supported regulatory reform that has been introduced to reduce systemic risk, following concerns about the stability of the market. But there is a significant amount of regulation still to be implemented, and the industry is concerned that this does not damage a market that drives economic growth for the UK.
There is a requirement for regulation that delivers safe markets but does not restrict financial innovation. With proposals from both the EU and the UK, it is important that regulation is co-ordinated as well as being effectively supervised and enforced. Legislators need to balance the legitimate interests of all users of the market in the drive to ensure fair, open, liquid and properly regulated markets.
TheCityUK report shows that the UK remains a key international centre for derivatives trading. The main UK-based exchanges - NYSE Liffe, London Metal Exchange and ICE Futures Europe - are each leading global exchanges in their own right. In addition the CME Group is seeking to strengthen its position with an application to set up an exchange in London.
TheCityUK report also found that emerging economies are rapidly expanding their derivatives exchange trading, with the share of global contracts traded in exchanges in the BRIC economies tripling from 10% in 2005 to 30% in 2011. However, the US still dominates the market, accounting for 33% of contracts traded in 2011, followed by South Korea with 16%, India with 15%, Germany with 8% and the UK with 6%.
You can view the report in full by following this link.
TheCityUK would like to thank NYSE Liffe for supporting this report.