Derivatives are instruments that function like insurance and can protect portfolios against wild swings in the price of stocks, interest rates, currencies, corporate bonds, commodities and even the weather.

The other side of insurance is risk exposure. Many investors now prefer expressing trading views through the use of derivatives rather than buying actual cash-based securities.

Trading on exchanges can simplify the process of clearing contracts, which some investors like. Others prefer the variability of the non-standardised contracts and the anonymity of private “over-the-counter” trading. Providers of the ability to trade on each side are now looking to grab a slice of the other’s business.

Regulation NMS, coming into effect in October this year, is set to shake up the trading environment. It will force exchanges to offer electronic trading and brokers to look for the fastest trades at the best price.

The large exchanges as well as an ever-growing number of smaller participants are positioning themselves to take advantage of the changes, or at least ensure they are not hurt by them.

The impact on the exchanges themselves will be profound. Any loss of market share could hit profits, unless overall volumes continue to grow.

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