Why ‘Derivatives’ became ‘Markets’

The derivatives markets have changed drastically over the past decade. So has Risk.net’s coverage

You may notice a change on Risk.net later this month. Or you may not. It’s a largely cosmetic tweak, but it’s also a symbolic one – and it could be misinterpreted. So, I’d like to explain what’s happening, and why. 

Next week, our ‘Derivatives’ desk will become our ‘Markets’ desk. This will be reflected in the newsletters we send, the tab at the top of our homepage, and the category we assign to each story – visible in every URL and article page.

It does not reflect a new change in our coverage. It reflects the way our coverage has already changed, in turn mirroring a shift in the world around us.

When Risk launched in 1987, as a publication for the then-nascent over-the-counter derivatives markets, most of our readers were involved in pricing derivatives, trading derivatives, structuring derivatives products and using derivatives to express a view or to hedge. They worked on derivatives desks, in derivatives teams, which were part of a wider derivatives business.

Risk.net’s coverage has shifted… recognising the convergence between cash and derivatives and the need for traders and risk managers to be fluent in the language and concepts of both markets

Particularly on the sell side, those desks grew into fiefdoms over the following two decades as the derivatives business became a money printing machine for most of the world’s big banks. This was always an artificial divide, owing more to internal politics – and the way bonuses were calculated and paid – than to the way the products are used. 

Over the past decade, those artificial barriers have come tumbling down. On the buy side in particular, cross-product and cross-asset-class trading has become common. On the sell side, banks continue to experiment with new combinations of business.

As one example, last year JP Morgan handed the keys of the credit business to Jason Sippel, its global head of equities. The move marked a shift in mindset. Most banks merged their cash equities and derivatives trading desks long ago in an effort to improve risk management and profitability as electronification took hold and revenues were squeezed. One of Sippel’s early moves was to centralise the management of clients, issuers, content and marketing for credit products, across cash and derivatives. 

Others are taking it a step further. Citi is halfway through a project to bring the entire universe of credit products under one roof so they can be risk-managed as a whole. This mirrors the approach in equities, where cash and derivatives positions are aggregated and hedged in a central risk book. 

Related

Citi is building a central risk book for credit 

JPM’s new-look credit unit primed for market uncertainty 

Risk.net’s coverage has shifted as well, recognising the convergence between cash and derivatives and the need for traders and risk managers to be fluent in the language and concepts of both markets. 

Some of this was driven by organisational change among our subscribers; some was driven by regulation that borrowed from cash and futures markets in its post-2009 attempts to de-risk OTC trading; and some was, frankly, a belated recognition that traders on both sides of the market don’t much care what product wrapper their exposure comes in. 

Over the past decade, we have written about repo markets, about stock market flash crashes, about government bond trading. We know these topics matter to readers who trade derivatives, but they are not ‘Derivatives’ stories.

So, the new label better reflects the way we – and our readers – go about our jobs. But please don’t worry that we’re about to start reporting on daily market moves. Our roots are in the derivatives markets, and our focus remains there. We’re just recognising that the derivatives market isn’t a walled city – it is part of a bigger, richer landscape. 

If you have any questions or comments on this change, please feel free to get in touch: [e-mail]

We are also currently running a survey to garner detailed feedback from our readers – if you have five minutes, please let us know where we can improve.