European retail brokers plan institutional and listed derivatives expansion in the face of CFD restrictions

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Retail Revolution is free to read. To download your copy, visit this link.

LONDON, March 6, 2024 /PRNewswire/ -- Retail brokers in Europe are targeting growth in institutional markets and expanding into listed futures and options should restrictions on contract for difference (CFD) markets continue to spread across the continent, a study by Acuiti has found. 

Last year, Spain became the latest European country to introduce new restrictions on instruments aimed at retail investors banning the promotion and distribution of CFDs as well as restricting leverage on other instruments. The move by the Spanish regulator follows curbs in other European countries on the promotion of certain retail-focused instruments.

Retail Revolution: How retail brokers are planning to counter CFD restrictions, released today and produced in association with ION, is based on a survey of retail-focused brokerages across Europe and a separate survey of institutional sell-side and trading firms.

The study analyzes the impact on retail brokers of expanded restrictions and how they plan to respond. In addition, we asked institutional firms about attitudes to the crackdowns on retail offerings and how firms view both the threat and the opportunity posed by the potential of retail expansion into listed markets.

The study found high levels of concern among retail brokers about the potential for increased curbs on retail instruments. This was particularly evident regarding CFDs, which would have the most significant impact on the business models of the majority of retail brokers that participated in the study.  

Were widespread restrictions to come into force across Europe, 77% of retail brokers planned to expand in other regions, 69% would seek to grow in institutional markets, and just over half would look to offer futures and options instead of OTC retail instruments, such as CFDs.

For incumbent institutional brokers, this presents a competitive challenge. However, only around half of the institutional sell-side firms that participated in the survey expected increased competition from retail firms, and none anticipated a significant challenge.

"There are several examples globally of brokers who initially focused on retail and subsequently became major players in institutional markets," said Will Mitting, founder of Acuiti. "In Europe, there is the potential for significant numbers of brokers to enter the institutional market over the next three years."

"Should retail trading shift to listed derivatives markets, the overall market available to institutional brokers will grow. However, there will also be major disruption as the retail firms bring fresh competition to the markets. Our view based on this research is that the institutional incumbents underestimate the extent of the potential disruption."

The study found that retail brokers were planning to invest in technology across the trade workflow to expand their offerings, with investment in trading, risk management, reconciliations, and straight-through processing to achieve front-to-back efficiency the most common.

"The insights from this study reinforce our commitment to automating workflow throughout the cleared derivatives trade lifecycle and the derivatives clearing process," says Bruce Roberts, ION Cleared Derivatives. "Our suite of XTP products caters for automation of the full trade life-cycle including trading, clearing, trade processing and real-time risk management , enabling firms to seamlessly scale their business and operations as they expand their product offering and customer base into new market segments."

Download the full report here: https://iongroup.com/resource-center/markets/retail-revolution-how-retail-brokers-are-planning-to-counter-cfd-restrictions/

About Acuiti
Acuiti is a management intelligence platform designed to provide Senior Industry Professionals in the Derivatives Industry with high-value insight into industry-wide performance and business operations. Acuiti provides a platform through which our exclusive network of Senior Industry Executives can share and source information on day-to-day operational challenges, providing them and their management teams with increased transparency and in-depth analysis to make more informed decisions and benchmark company performance. Financial Institutions benefiting from our services include Banks, Non-bank FCMs, Brokers, Proprietary Trading Firms, Hedge Funds and Asset Managers.

About ION
ION provides mission-critical trading and workflow automation software, high-value analytics and insights, and strategic consulting to financial institutions, central banks, governments, and corporate organizations. Our solutions and services simplify complex processes, boost efficiency, and enable better decision-making. We build long-term partnerships with our clients, helping transform their businesses for sustained success through continuous innovation. For more information, visit https://iongroup.com/.

About ION Markets
ION Markets provides transformative technology and solutions to financial institutions dealing in asset management, cleared derivatives, equities, fixed income, foreign exchange, and secured funding. Our award-winning end-to-end solutions simplify clients' operations by automating the full trade lifecycle, providing tools to manage risk, and maximizing access to liquidity, while giving real-time access to critical information required for timely operational decisions and execution on a global scale. For more information, visit https://iongroup.com/markets/.