Despite regulatory requirements to the contrary, the latest BIS report on global derivatives activity concludes that subsequent to the Financial Crisis exchange trading has remained flat while OTC activity is expanding. As noted in the comments, this is precisely because end-users require customization not available on exchanges. This important factor was recognized by Direct Swap years ago, and is a core differentiator for our business.
The Bank for International Settlements quarterly review...concluded: “Since 2009, the trading of derivatives on exchanges has shown no trend, whereas their OTC trading has trended upwards.” Andy Ross, chief executive of CurveGlobal...said: “I actually don’t think the end users of derivatives want OTC derivatives to go away. They may want...OTC derivatives because it gives them the risk management hedge they...need.” In the wake of the financial crisis, the G20 leaders agreed to adopt of series of reforms designed to reduce risk in derivatives markets, ranging from greater reporting, to the adoption of central clearing as well as promotion of electronic trading. The difficulty for exchanges is that only those contracts that are highly standardized are suited to move into the realm of order book trading. And investors still like to be able to tailor contracts to meet their specific needs.