London Boosts Share of Global Derivatives Market

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Byline: Natasha de Teran

London's importance as a centre of derivatives trading was underlined last week by a report showing the UK capital to be the world's biggest over-the-counter (OTC) derivatives-trading centre, accounting for 36% of the $1.4 trillion-a-day market, substantially above the 27% share recorded in 1995.Derivatives, published by the UK promotional body, International Financial Services London (IFSL), was released to coincide with a London derivatives conference jointly organised by the Futures Industry Association (FIA) and the Futures and Options Exchange (FOA). IFSL, formerly known as British Invisibles, is a privately funded company which promotes UK financial services. Duncan McKenzie, author of the report and director of economics at IFSL, says: 'The UK derivatives industry brings considerable benefits to business and individuals alike in reducing the costs of finance, achieving more stable commodity prices and controlling foreign exchange risk. The industry is estimated to employ 10,000 people in the UK and generates more than [pound]300m ([euro];471m) a year in overseas earnings.' According to McKenzie, London's supremacy in the market is due to a number of factors: the concentration of risk capital and liquidity, the broad network of market participants, the depth of skill base, the comprehensive range of derivatives products, 'light-touch' supervision, a favourable tax environment and unified regulation.McKenzie also made particular mention of advantages brought by London Clearing House's (LCH) integrated clearing. He says: 'Integration of clearing and settlement remains an issue of prime concern to customers, as it would help to reduce their costs across the various European markets. 'London Clearing House (LCH) is regarded as a model for clearing because it is independent of any trading platform or settlement organisation. LCH has been working with the investment banks in seeking the integration of clearing and settlement in Europe, which would substantially reduce the costs of the investment banks. …