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Capital Markets

Equity derivatives set for continued global growth

By John Ferry

The global equity derivatives industry will continue to grow at a double-digit rate for the foreseeable future, according to industry observers and participants. The jump in equity market volatility that kicked off in May will lead to more hedging, and parts of the market, such as structured products, will continue to grow fast. “There is still enormous potential for macro-wide growth over the next five to 10 years, with a lot of demand for capital-protected investments globally,” says David Herzberg, global head of equity derivatives at JPMorgan Chase in New York.

Boston Consulting Group expects investment banking revenues worldwide to exceed $250 billion by 2007, with hedge fund business and equity derivatives acting as “key growth drivers” of equity businesses. The company expects global revenues from equity derivatives to grow to $20 billion in 2007, on the back of annual revenue growth rates of 12% to 14%, with over-the-counter structured products accounting for approximately half of the market, and exchange-traded derivatives and convertibles making up the remainder. Svilen Ivanov, leader of BCG’s global investment banking practice, says he expects product volume growth in the region of 10% to 15% annually, supported by lower trading costs and constant innovation.

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