The agent-principal dilemma

The future is a scary place for derivatives market-makers. Faced with a barrage of new rules, some have begun to prepare for a world in which they act more as agents than principals – but what does that mean for the profitability of the business? Mark Pengelly reports

For some dealers, it is clear which way the wind is blowing. New regulations that will force a large part of the over-the-counter derivatives market to trade on exchanges or electronic trading platforms mean the traditional market-maker model of liquidity provision, risk-taking and balance-sheet commitment may soon be less relevant than it is today. Instead, some firms predict they will operate more on an agency basis, similar to how they work in the foreign exchange and equities markets. In