If you work in complex structured derivatives, you are either going to lose your job, or you are going to keep it and earn a lot more

A time of feast or famine may be approaching for OTC derivatives professionals. How you position yourself now could determine whether you starve, or achieve a BMI in excess of 45 at some point in the future.

This is because, short term, the outlook for fixed income trading looks ok. Longer term, it doesn't.

From 2012 onwards, analysts at Bernstein Research in the US are predicting that headcount allocated to US banks' fixed income businesses will decline, "as business is rationalized to reflect new regulatory realities."

The biggest headcount reduction is expected to be in fixed income derivatives.

"The derivatives business is going to evolve," says Brad Hintz, senior analyst at Bernstein. "It will be more liquid, with fewer and cheaper people.

"If two thirds of the derivatives market becomes actively traded, banks aren't going to need the guys who are great structurers any more," he adds. "All they'll need are execution people."

Get out of US banks, now

From Hintz's perspective, the jobs decimation is likely to be worse at US houses.

"The Volcker rules, TARP tax, liquidity and leverage limits will ultimately reduce FICC, institutional equity and commodities ROEs and lead to the reallocation of capital from these businesses," he writes.

Senator Blanche Lincoln's proposal to force US banks to spin off derivative trading units, will be particularly bad for derivatives jobs if it goes ahead (which currently appears to be the case). Moving OTC derivatives trades onto exchanges will compound the pain.

However, Hintz isn't predicting that the structured derivatives market will disappear altogether: he just thinks it will get smaller, and more lucrative.

"The pricing for the highly structured products part of the business will increase. There will be fewer people working in it, but they might make more money," he says.

He also predicts that European banks will capture what remains of the highly structured market after most products become exchange traded: "If I am a client who wants to place a hugely structured trade, I'm going to do it with a double A rated European universal bank, rather than with a brand new derivatives hub which has just been spun out of a US bank."

If Hintz is right, structurers at US banks may want to consider their options. An early move into a European house could make all the difference.