The report, issued by consultancy firm Investit, suggested that fund managers would be better off in terms of risk and regulation to channel derivatives exposure on-exchange as opposed to OTC.
However, it also highlighted the liquidity and customisation limitations in trading purely on exchange, leaving many industry participants wondering whether the increasingly popular exchange OTC clearing model could be the natural middle ground for fund managers to adopt.
Investit principal Catherine Doherty, co-author of the report, highlighted a number of issues relating to fund managers' derivative trading. These included regulatory developments such as the European Union's markets in financial instruments directive (Mifid) and undertaking for collective investment in transferable securities (Ucits) version three, requiring managers to be more transparent in their price discovery and working practice - an area in which exchange products score over their OTC equivalents. Doherty also questioned the quality of communication between exchanges and fund managers...