Looking at what 2024 holds in store, Liquidnet’s most recent liquidity landscape report highlighted market outages and resiliency as one of the ‘must watch’ areas for both regulators and market participants, highlighting the importance of individual responsibility when it comes to ensuring markets remain healthy.
In the second half of 2023 the London Stock Exchange (LSEG) experienced two outages on AIM stocks between October and December. Along with other examples across the globe, these outages have exacerbated the ongoing analysis by regulators to ensure stricter processes in these instances.
With all regulators focused on preventing these market disruptions, the urgency is only increasing, explained Liquidnet, especially given rising awareness around cyber-attacks and the threat of consumer data being compromised.
Read more: ESMA publishes recommendations for trading venues in the event of a market outage
Regulators are already hiring in data analysts, scientists, and synthetic data experts to support a data-led approach to emerging and updated regulations. However, as the market continues to develop at an extremely high rate, with innovation ever-accelerating, the scope of individual firms’ collective responsibility is subsequently rising.
Discussing the most important factors in this vein, the report highlighted: the relevance of the market’s increasing reliance on third party firms, cloud technology, and increasing automation across all asset classes.
“The industry is only as strong as its weakest link […] 2024 will not only represent greater regulatory scrutiny of compliance, risks, and controls as well as technology interoperability, but individual responsibility in making the eco-system function optimally,” said Liquidnet.
As new technologies emerge and distinct approaches are taken, firms must demonstrably take their responsibilities seriously or else risk hindering the operation of the markets themselves.
Notably, looking at the performance of UK primary volumes during Q4 2023, Liquidnet explained that results show consistent volumes despite the uptick in market outages.
The report explained: “Several outages on the LSE during the quarter impacted the availability of primary exchange liquidity and price formation. Despite this, UK Lit MTF and primary exchange market shares ticked upwards.”
This finding broadly aligns with the general trend in EMEA, indicating that so far there has been limited sustained impact from outages on market activity.
Read more: Tech glitches should not be the cause of stock exchange outages in this day and age
Elsewhere, other must watch areas highlighted by the report included the US shift to T+1 settlement.
While the industry has – and continues to – unpack the importance of trade automation and the interconnectedness of global markets when it comes to discussions around T+1, the time has come to assess the investment funding side of the topic, as well as the settling of trades, explained the report.
The shorter time frame will mean improvements are needed across the full investment life cycle, including but not limited to: standardisation of allocations, confirmations, and affirmations for all asset classes; the ability to access accurate reference data instantly; and automation of asset servicing.
Liquidnet also underscored that while the US move to T+1 will dominate the market’s agenda in the immediate term, a more pervasive issue is looking set to be the continuing digitalisation of the market.