TowerGroup has published new research showing record profits from derivatives and structured products on Wall Street in the first three quarters of 2006. They expect US brokerage firms will generate $33.2 billion from derivatives related revenue in 2006.
Over the next three years, TowerGroup expects buy-side derivatives usage to increase due to the shift to electronic trading, and more accommodating regulations, which allow derivatives usage in pension funds and institutional money management.
“We are seeing enormous demand for derivatives from the buy-side, particularly relative to hedge funds, following the relaxation of restrictions on using derivatives for managing money,” says Dushyant Shahrawat, the research area director of the Securities & Capital Markets research service at TowerGroup. “Yet, for many, the derivatives market remains an enigma that is both overly complex and difficult to grasp.”