Foreign exchange derivatives professionals met last week at a City seminar to discuss the future of the industry and predicted Main Street would start trading barrier options in their pension funds and computers would take over risk management. "We may be able to trade barriers and digital options as part of our pension funds. I'm looking forward to that," said Bernd Broker, head of foreign exchange for Europe at Bear Stearns in London. He continued that the main change in foreign exchange derivatives is likely to be in the way they are sold. "Most of the good innovative ideas have appeared already and people don't want to go much further, because then only about 2% of investors will want to be involved."
Changes to the way the options are sold will mean more investors can enter the market. Lutfey Siddiqi, global head of foreign exchange structuring at Barclays Capital in London, said wrapping exotic derivatives as structured notes, for example, allows more types of investors, such as pension funds, to execute trades.
On the product side, Neehal Shah, global head of foreign exchange options trading at Deutsche Bank in London, said derivatives referenced to volatility will become more popular. He added, options on volatility such as vol swaps will become more common as lower tier banks start to offer the products.
The bankers also spoke about advances in derivatives systems. Kelvin Jouhar, head of foreign exchange spot and derivatives at HBoS, predicted computers role in risk management will increase as artificial intelligence is developed. He acknowledged, however, that his forecast was "off the wall."