The futures & options market is fiercely competitive, and the clients of F&O brokers are notoriously transient. F&O is the most electronified asset class, where over 90% of flow is traded electronically with execution and clearing done on the exchange. In terms of methods of accessing listed F&O liquidity, there is an even split between single-bank platforms (in the form of white-label solutions) and FIX connections. Screen trading of listed F&O contracts is preferred when the trading work requires an element of discretion, while FIX connections to exchanges are used by high-frequency trading firms.
The futures & options market has moved to a ‘utility model’ where the focus is on the industrialisation of trading processes, cost optimisation and efficiency. Unlike the cash equities OMS market, F&O clients are not looking for value-add services such as research, sales-trading or additional trading tools. Instead, their focus is on execution performance and costs. F&O execution systems are catching up with the systems used for execution in cash equities. However, the F&O execution systems still lag behind equities in terms of the sophistication of algorithmic trading. Automated trade execution in F&O contracts is limited because the products are less fungible than equity instruments, which – in turn – restricts the need for smart order routing technology in the F&O space.
This report presents two types of futures & options brokerage business, three types of F&O trading systems, and it provides ratings of the 11 leading F&O trading technology vendors.
