Blink and you’ll miss it. The past 12 months have been nothing short of a rollercoaster in the markets and technology landscape. We’ve faced the harsh reality of prolonged higher rates, persistent inflation, and seismic events like Silicon Valley Bank’s collapse. Meanwhile, tight liquidity has become the name of the game, turning the playing field into a high-stakes battleground. Last year also saw the emergence of generative AI, thrusting capabilities once thought decades away into our present reality.
This accelerating pace of change is reshaping markets and driving fundamental shifts in how institutional investors navigate them. The focal point? Multi-asset trading, a force widely expected to grow significantly in the coming years. This surge is fueled by the demand for portfolios that mirror a more intricate market, a heightened focus on risk management and technology seamlessly connecting previously isolated asset classes and functions.
The confluence of these factors is painting an exhilarating – albeit challenging – picture for the next chapter in financial markets. In 2023 the stage was set for systemic and structural changes that promise profound and enduring impacts on the global trading ecosystem in the coming months and beyond — a financial Super Bowl, where every play could be a game-changer.
Anticipating a changing system
At the heart of the trading ecosystem, our mission is to anticipate and adapt to the evolving needs of the buy-side – leveraging our technology and talent to serve a rapidly transforming industry. In this era of heightened competition, adaptation is key for brokers and platforms striving to stand out. Foresight becomes paramount, and we’re keeping a close eye on four trends that will define how brokers and platforms operate in 2024: Multi-asset migration, seeking liquidity, evolving brokers, and regulation.
Firstly, in terms of multi-asset migration, silos are crumbling as electronification sweeps across asset classes, paving the way for interconnected investment strategies. With over 60% of managers currently deploying multi-asset strategies, the financial system must adapt. The challenge now lies in allowing firms to concurrently trade various asset classes while incorporating advances in algorithmic trading. The divide between high and low-touch trading is widening, with the real battleground in executing large and intricate trades that set strategies apart.
Secondly, in the pursuit of liquidity, while connecting clients with hard-to-source liquidity remains a primary function, it’s no longer sufficient for differentiation. Investment firms are evolving their strategies to capitalise on emerging conditions and technology, necessitating deeper, more diverse sources of liquidity. Modern platforms must navigate fragmentation, instill client confidence in executing large orders, and tackle multi-asset trading challenges simultaneously.
Thirdly, brokers and platforms are evolving, no longer just facilitators, they are partners in navigating changing market structures, executing complex trades, finding specific types of liquidity and connecting clients with vital data. This evolution requires a keen understanding of how workflows are changing, offering not just market access but also the tools and insights needed for short-term success and long-term adaptability.
Finally, a wave of new regulations and market structure changes is compounding the pressure on an industry already burdened by stringent rules. From the prospect of T+1 to amendments in Mifid II in Europe and impending Best Execution rules in the US, operational costs are on the rise. Upholding market structure, demonstrating value and aiding firms in overcoming these hurdles have never been more critical.
Redefining value
As I look ahead to 2024, the relentless pace of technological change and challenging market conditions are unlikely to wane. While fixed income and equity markets have witnessed a resurgence, the underlying challenges persist, putting additional strain on already stretched trading desks.
However, the real transformation lies in how firms operate within and approach markets. Mass electronification has transformed markets from black and white to a spectrum of endless possibilities. Investors must integrate emerging market nuances into their workflows and brokers must provide the tools and expertise to focus on higher-value tasks while enhancing operational efficiencies.
In this race across the financial ecosystem, the goal is clear – differentiate and redefine how value is added throughout the trading lifecycle. The rise of advanced technology in financial markets doesn’t signal the end for human brokers and traders. Rather, it heralds an exciting next chapter in the evolution of global markets where new ideas and innovations will crown the leaders of the future. As we navigate this dynamic landscape, we must embrace the challenges ahead as opportunities for growth, innovation, and success in the ever-evolving world of trading.