Equity derivatives: Structuring houses go with the flow

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.