Two trends in equity derivatives were predicted after the heavy losses made by many investment banks last year: a shift from exotics to plain-vanilla products and the transfer of over-the-counter trading to exchanges.
In June, bank analysts at JPMorgan predicted that 2009 equity derivatives revenues would be 29% down on 2008, driven in part by the decline in fees earned on exotic products. Although 2010 revenues are expected to be up about 16% on this year, a tougher regulatory environment might force a permanent shift to lower-margin flow products.
Early evidence suggests that there has already been a move away from complex return-seeking structures towards risk management, particularly by retail investors.
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