Most of the
brokers that clear exchange-traded derivatives plan to spend more on the
technology behind their trades over the next three years.
The study,
conducted by research firm Acuiti in association with Nasdaq, found that 69% of
futures commission merchants intend to increase their post-trade budgets, with
46% planning to lift spending by more than 10%.
Acuiti
interviewed senior executives at 50 bank FCMs, non-bank FCMs and other clearing
brokers worldwide, and separately polled its network of asset managers and
hedge funds.
The numbers
describe an unglamorous corner of the market that firms underfunded for years
and now feel pressure to fix.
Legacy Tech Tops the List
of FCM Pain Points
Just over
half of the clearing
Clearing
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Read this Term firms surveyed, 53%, said their dependence on legacy
post-trade systems was their single biggest operational problem. A similar
share complained that there are not enough third-party vendors to choose from.
Most firms
do not build this plumbing themselves. About 35% rely mainly on vendor
platforms, 15% run mostly in-house systems and the other half use a mix of the
two, which spreads the cost and frees firms to focus on winning clients, the
report said.
The
concern, the report noted, is that much of that core technology is nearing the
end of its life. The strain showed during the volatility that followed the
spread of Covid-19 in 2020, when post-trade systems buckled under record
volumes and triggered a wave of spending across the sell-side.
This is not
the first time Acuiti has flagged the trend, having reported in 2024 that US clearing brokers were pouring
money into front-office technology to fend off non-bank rivals.
A Shrinking Vendor Pool
Meets a Spending Wave
The catch
is that firms have fewer places to take their money. The number of third-party
vendors serving the market has fallen over the past two decades as mergers
thinned the field and some providers withdrew, the report said.
That has
left clearing brokers leaning on a handful of incumbents such as FIS and ION
Group even as they complain about the lack of choice.
That
backdrop helps explain why Nasdaq attached its name to the research. The
exchange
Exchange
An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv
An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv
Read this Term operator sells Calypso, a clearing platform it pitches as a single
system for risk, margin and collateral across listed and over-the-counter
derivatives, and the survey's findings line up closely with what Calypso is
built to address.
Nasdaq is
not the only firm chasing the work. LSEG Technology supplied the post-trade
platform that London clearing house LCH's EquityClear migrated onto, and in May 2024 Nasdaq agreed to
plug its Real-Time Clearing system into FIA Tech's industry data network.
Nasdaq has
also been pushing Calypso into digital assets, partnering with Talos in March on
tokenized collateral
after a green light from US securities regulators.
Spending Set to Rise, With
AI in the Frame
Asked why
budgets are climbing, firms gave two main reasons: more automation and client
demand for new features. Both point to the same squeeze, the report said, with
brokers trying to cut manual work while keeping demanding customers satisfied.
Artificial
intelligence is edging into the picture. More than half of the firms, 56%, said
they risk falling behind competitors if they do not fold AI or machine learning
into their clearing operations.
When sizing
up a vendor, resilience and reliability ranked first, followed by ease of
integration, total cost of ownership and real-time processing.
Buy-Side Wants Clearer
Margin Math
The asset
managers and hedge funds on the other side of these relationships had their own
complaints. Not one described the way their brokers treat risk across products
as very consistent, while 82% called it quite consistent and the rest found it
not very consistent at all.
Margin is
the sore spot. Some 47% of buy-side firms named a lack of transparency over how
margin is calculated as their top frustration, and 38% pointed to inconsistent
methods across products and clearing houses.
They also
want faster, more integrated data feeds, the report said.
What It Means for US
Retail Forex Brokers
The FCM
label stretches well beyond the futures clearing giants the report focuses on.
In the United States, retail forex dealers register as FCMs too, which puts
several familiar brokerage names inside the same regulatory bucket.
Only six of
them report retail forex obligations to the CFTC, holding about $488.59 million in customer
deposits in March.
That pool
has been shrinking and consolidating much like the vendor market the report
describes. StoneX, the owner of Forex.com, became the largest non-bank FCM in
the country, by its own account, after buying futures broker R.J. O'Brien in a deal valued at roughly $900
million.
Retail-focused
firms are moving the other way into listed markets, with IG's tastytrade and
Plus500 both chasing US futures and options
revenue.
Most of the
brokers that clear exchange-traded derivatives plan to spend more on the
technology behind their trades over the next three years.
The study,
conducted by research firm Acuiti in association with Nasdaq, found that 69% of
futures commission merchants intend to increase their post-trade budgets, with
46% planning to lift spending by more than 10%.
Acuiti
interviewed senior executives at 50 bank FCMs, non-bank FCMs and other clearing
brokers worldwide, and separately polled its network of asset managers and
hedge funds.
The numbers
describe an unglamorous corner of the market that firms underfunded for years
and now feel pressure to fix.
Legacy Tech Tops the List
of FCM Pain Points
Just over
half of the clearing
Clearing
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Read this Term firms surveyed, 53%, said their dependence on legacy
post-trade systems was their single biggest operational problem. A similar
share complained that there are not enough third-party vendors to choose from.
Most firms
do not build this plumbing themselves. About 35% rely mainly on vendor
platforms, 15% run mostly in-house systems and the other half use a mix of the
two, which spreads the cost and frees firms to focus on winning clients, the
report said.
The
concern, the report noted, is that much of that core technology is nearing the
end of its life. The strain showed during the volatility that followed the
spread of Covid-19 in 2020, when post-trade systems buckled under record
volumes and triggered a wave of spending across the sell-side.
This is not
the first time Acuiti has flagged the trend, having reported in 2024 that US clearing brokers were pouring
money into front-office technology to fend off non-bank rivals.
A Shrinking Vendor Pool
Meets a Spending Wave
The catch
is that firms have fewer places to take their money. The number of third-party
vendors serving the market has fallen over the past two decades as mergers
thinned the field and some providers withdrew, the report said.
That has
left clearing brokers leaning on a handful of incumbents such as FIS and ION
Group even as they complain about the lack of choice.
That
backdrop helps explain why Nasdaq attached its name to the research. The
exchange
Exchange
An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv
An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv
Read this Term operator sells Calypso, a clearing platform it pitches as a single
system for risk, margin and collateral across listed and over-the-counter
derivatives, and the survey's findings line up closely with what Calypso is
built to address.
Nasdaq is
not the only firm chasing the work. LSEG Technology supplied the post-trade
platform that London clearing house LCH's EquityClear migrated onto, and in May 2024 Nasdaq agreed to
plug its Real-Time Clearing system into FIA Tech's industry data network.
Nasdaq has
also been pushing Calypso into digital assets, partnering with Talos in March on
tokenized collateral
after a green light from US securities regulators.
Spending Set to Rise, With
AI in the Frame
Asked why
budgets are climbing, firms gave two main reasons: more automation and client
demand for new features. Both point to the same squeeze, the report said, with
brokers trying to cut manual work while keeping demanding customers satisfied.
Artificial
intelligence is edging into the picture. More than half of the firms, 56%, said
they risk falling behind competitors if they do not fold AI or machine learning
into their clearing operations.
When sizing
up a vendor, resilience and reliability ranked first, followed by ease of
integration, total cost of ownership and real-time processing.
Buy-Side Wants Clearer
Margin Math
The asset
managers and hedge funds on the other side of these relationships had their own
complaints. Not one described the way their brokers treat risk across products
as very consistent, while 82% called it quite consistent and the rest found it
not very consistent at all.
Margin is
the sore spot. Some 47% of buy-side firms named a lack of transparency over how
margin is calculated as their top frustration, and 38% pointed to inconsistent
methods across products and clearing houses.
They also
want faster, more integrated data feeds, the report said.
What It Means for US
Retail Forex Brokers
The FCM
label stretches well beyond the futures clearing giants the report focuses on.
In the United States, retail forex dealers register as FCMs too, which puts
several familiar brokerage names inside the same regulatory bucket.
Only six of
them report retail forex obligations to the CFTC, holding about $488.59 million in customer
deposits in March.
That pool
has been shrinking and consolidating much like the vendor market the report
describes. StoneX, the owner of Forex.com, became the largest non-bank FCM in
the country, by its own account, after buying futures broker R.J. O'Brien in a deal valued at roughly $900
million.
Retail-focused
firms are moving the other way into listed markets, with IG's tastytrade and
Plus500 both chasing US futures and options
revenue.
