Listed energy and commodity derivatives markets experienced major liquidity issues during the February volatility while crypto derivatives remained liquid, a new report has found.

Following Russia’s invasion of Ukraine, global bourses were sent into a tailspin with volatility not seen since the early days of Covid gripping markets.
According to the Q2 2022, Proprietary Trading Management Insight Report, produced by Acuiti in partnership with Avelacom, energy and commodity markets experienced the most liquidity issues.

The report, which is based upon a quarterly survey of Acuiti Expert Network of over 100 senior proprietary trading executives, found that a third of respondents experienced major liquidity issues in energy and 29% in commodities.
Just 21% of respondents said that they experienced no liquidity issues in commodities during the volatility. Comparatively 78% of respondents experienced no liquidity issues in crypto currencies.

As a result of the volatility experienced in Q1, proprietary trading firms said they intended to make structural changes.

Some 38% said they were planning on changing the parameters of their algos while 21% said they were reducing their long-term risk limits and 19% said they were increasing their network capacity.

“The Q1 market volatility in energy and commodity derivatives has now extended more broadly to equities, fixed income and crypto,” said Aleksey Larichev, CEO of Avelacom. “A key technology finding of this report is that firms recognize the importance of enhancing their network capacity at times of market volatility.”

The report also found that sell-side clearing operations performed significantly better than in the previous spike in volumes around the initial outbreak of covid. Under a third of respondents reporting late statements from their clearing firm with just 3% reporting frequently late statements.

However, the impact of the high volumes is being felt by firms with around three quarters reporting higher or significantly higher initial margins. This has resulted in firms putting in place more stringent cash management as well as over a quarter of firms saying that the higher margins will impact profitability.

“These are very challenging times for capital markets globally,” said Will Mitting, founder of Acuiti. “While many lessons have been learned from the volatility of 2020, there remain liquidity and margin pressures on proprietary trading firms during market disruptions.”