FIA Head of Asia-Pacific Bill Herder moderated the panel, which included Benjamin Cohn-Urbach, Senior Executive Leader, Market Infrastructure at the Australian Securities and Investments Commission (ASIC); Daniel Sinclair, General Manager, Product Management, Markets at ASX; Jonathan Ferreira, Vice President Head of Sales – North Asia/Australia & New Zealand at Trading Technologies; and Simon Fraser, Head of Business Development at GFO-X. 

Experience counts when turbulence hits 

Volatility is like oxygen to derivatives markets, and significant geopolitical tensions and shifts in fiscal policy over the past two years have resulted in periods of historically high trading volumes.  

The panellists broadly agreed that the recent period of extreme volatility, large price swings and strong market volumes were handled well by the market. Sinclair put it down to participants investing in systems and processes and building experience during multiple extreme volatility events over recent years. “Exchanges are managing these volatility events fairly well, this provides confidence to the market,” he said.

At the same time, participants are learning how to apply AI and machine learning in search of alpha, Ferreira explained. Additionally, larger trades in cryptocurrencies and digital assets have increasingly been executed in the over-the-counter (OTC) market to avoid volatility on the public exchanges.  

Payments in milliseconds on the way 

While ASX has discontinued its effort to use blockchain technology for settlements, Fraser believes we may see tokenisation offshore soon. He said he expected some global exchanges to accept stablecoin as margin within the next three years. If the US Senate approves Bank of America’s plan to issue a stablecoin, other banks are likely to follow, he added.  

Delays and budget overruns are common pitfalls when implementing new systems, but the benefits of a modernised trading system can justify the cost, the audience heard. “We are moving to a time when markets will operate 24/7, with payments happening in milliseconds,” Ferreira noted.  

The Australian derivatives market is becoming more globalised, said Sinclair, so it’s worth paying attention to how other markets operate. “Our ability to adapt and manage constraints in resources are important problems to solve if we are to grow the ecosystem and make more robust markets,” he said. 

Technology can support innovation and new services, Cohn-Urbach agreed, but providers must ensure that their core systems are robust. “If consumers and markets have bad outcomes, we have to get involved,” he said. 

Compliance and the role of AI 

As AI’s tentacles reach into all corners of commerce, the panel speculated how it might affect derivatives trading. Fraser acknowledged AI is suitable for learning about and monitoring compliance within algorithmic codes in real time.  

Sinclair has noticed AI is being used to optimise execution at investor and trader levels, but not for thinly traded assets. “There’s still a role for high-touch execution in less liquid markets,” he said. 

ASIC notes that AI could bring significant benefits but that governance processes need to keep pace to mitigate against any emerging risks. Compliance is one area that could benefit from AI adoption, Cohn-Urbach said, with the stipulation that a human monitors output. Compliance professionals can’t outsource their obligations to AI.

Ferreira commented that any rulings also push the industry—including vendors—to provide better surveillance, smarter order controls, and tools to prevent manipulation, especially in illiquid products.

Retail investors at the sideline 

Australian self-managed superannuation funds (SMSFs) hold more than $1 trillion in assets, according to Australian Prudential Regulation Authority data, putting retail investors on the radar. Many qualify as sophisticated investors, but derivatives trading has complicated requirements. “It’s difficult to find a place to open an account for you, for a start,” Fraser said. “Compliance is a big factor.” 

It's a different story in overseas markets.  Retail participation in derivatives, specifically options, is much higher in the US, China and India. “There is a very defined international trend towards retail participation in derivatives,” Sinclair said. ASX facilitates retail market participation through education (ASX Investor Day held in conjunction with market participants) and events such as the Sharemarket Game and Options Trading Game, this has seen new retail customers accessing ASX’s derivatives markets.

Carbon futures and sustainability 

Finally, discussion turned to the emerging carbon markets. The accelerating efforts to decarbonise industry and services in Australia to fulfil net zero emissions targets is expected to support trade in carbon futures and exchange-traded sustainability products. It has been a relatively slow start, but Australia is well positioned to benefit from developing carbon markets, attendees heard. 

Sinclair notes “As the primary market operator for power derivatives in Australia and New Zealand, the ASX is well positioned to support the energy transition through developing an integrated ecosystem across electricity, gas, carbon, and renewable derivative markets.” 

The panel agreed the net zero emissions transition will be a major theme for markets, as long as the safeguard mechanism that defines tradable carbon credits is underlined by political will. 

“At the moment, the environmental products are predominantly trading in the OTC market,” Sinclair said. “As the market matures and scales, we should see liquidity centralised on an exchange, with methodology and co-benefit price differentials reflected in the OTC market as a spread to the underlying exchange price.”

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