Did you observe any notable trends or changes in trading behaviours during the election?
Outside of the increased trading volumes, which were expected in certain asset classes, from an electronic trading perspective, there was a notable uptick in the use of FX algos—especially market-tracking algos. This is perhaps not a surprise, but it does show the progression from limit orders to more dynamic algorithmic execution during risk events. What particularly stood out for me was the significant increase in basket trading. The basket execution tool, that we call StratX, likely suited these market conditions given the ability to react quickly during market events and simultaneously execute a basket of market-tracking or limit-based liquidity-seeking strategies containing multiple sizes and currency pairs.
To put that in context, if a Trump victory and a Republican sweep were perhaps foreseen, by creating a basket in advance that reflects the desired positioning, you would have it all ready to go as and when needed. During the campaign, with the policy proposals that were put forward, the associated potential tariffs and fiscal outlook, the FX strategy could look to express broad USD strength versus CNH, high-beta Eurobloc, and commodity FX. In addition to that is the single-line ‘basket order’, which may have provided the ability to execute a single limit order at mid.
To what extent do you think these trends may become more common place beyond the elections?
The basket trading observed demonstrates how workflow efficiencies that enable market participants to trade at scale can be just as important as execution and pricing competitiveness, especially in volatile markets. I believe that these execution tools, as well as other tools, will become more widely used, not only in stress events but also during normal times when their use perhaps fulfils a desired execution outcome. In the current rate environment, we’ve seen this during monetary policy decision points and any associated volatility.
The increased use of FX algos reflects the growing level of comfort with algorithmic execution, but it also signifies a step change in the development, customisation, and sophistication of the algos, as well as the associated tools. As trading insights, analytics, and TCA develop in tandem, the performance of the algos and those associated e-trading tools can then be assessed, whether it’s pre-, at- or post-trade, which then validates or helps to shape algo choice and further enhancement. Additionally, when looking at broader asset classes, algos are being employed and developed elsewhere, so it will be interesting to see how that shapes up.
How could a potential regime shift impact the trading landscape over time?
We know that policy initiatives have a meaningful impact on how market participants interact and trade. One doesn’t have to look back all the way to Dodd-Frank to see how regulatory requirements have shaped trading behaviour and technological developments. We’ve certainly seen a significant number of regulatory proposals and final rules in the past few years. Thinking about this election and what lies ahead, personnel at the regulatory agencies will have a significant impact on the policy agenda. Over time, we will be monitoring any changes in senior staff at agencies like the SEC and the CFTC and assessing the impact these changes may have on rulemaking dynamics.
Under a Trump administration, there are a few ways that previously finalised rules can be unwound, delayed, or amended. Set against this backdrop, we expect a less active regulatory environment. Policy priorities for the new administration may focus on initiatives that support innovation and the use of emerging technologies like digital assets and artificial intelligence. That said, it is too early to make any predictions, and we’re tracking what this change in administration could mean across a number of market structural rules.
Are there any particular final rules you’re keeping a look out for that could affect trading?
Absolutely. I’ll mention just a few that we’ll be examining these through the lens of what the new administration could mean for likelihood of finalisation, timing, and impact.
First up, it will be of particular interest to see the outcome of litigation on the SEC ‘definition of a dealer’ final rule. Given the effective date of this rule in Q2 2025, should the rule stand, this does not leave a huge amount of time for any impacted market participants to prepare, compounded by the US Treasury cash clearing requirement at end of 2025.
There is considerable industry preparation underway for the US Treasury central clearing requirements. The repo clearing component, for example, impacts a vast number of market participants. This final rule is significant given the potential impact on pricing, liquidity, and trading activity in both the cash and repo markets.
With the advancement of trading technology in mind, an SEC proposal, which looks to change the definition of an ‘exchange’ and apply Regulation ATS to Treasury platforms previously exempt from this regulation, had been in the frame for finalisation. Market participants have been keenly tracking this due to considerations for execution management systems and emergent technology, which seek to introduce efficiencies in operational workflows.
And last but not least, we are of course keeping an eye on any revision to the Basel III Endgame and GSIB Surcharge proposals from the US agencies because of the broad reaching and significant impact the original proposals would have on market liquidity and capital markets.