The TRADE predictions series 2023: Technology, part one

Participants from Horizon Software, TS Imagine, LedgerEdge, Liquidnet, and FlexTrade Systems predict how technology will evolve next year alongside exploring the benefits improved technology will bring.

By Editors

Andrew Morgan, president and chief revenue officer, TS Imagine: The volatility and volumes of the past year have only underlined the fact that technology is the difference maker when it comes to navigating modern markets. Disparate systems built on legacy technology are not fit for purpose and trading desks require consolidated, multi-asset systems to be able to achieve better results and operational efficiencies.

As the market continues to evolve, so too must the underlying technology. Liquidity, risk management tools, and trade analytics will be front of mind going into the new year for managers. Traders will have to navigate constantly evolving markets, high inflation, and rising interest rates. We expect a major shift towards hedging strategies to mitigate the turbulence in the markets, and desks that don’t have the right underlying EMS technology, particularly the capacity for electronic fixed income trading, will face a significant disadvantage. Fixed income trading has long been tied with legacy processes, but with a hangover of tight liquidity in bonds expected into next year, we expect the industry push the electronification envelope next year. 

Dom Holland, UK head of sales, LedgerEdge: Innovation and efficiency will continue to grow apace, but 2023 will see a move to higher quality information with smart filtering to eliminate “noise”. The decades-long journey from analogue to digital finance has resulted in cash evaporating from our lives – making transactions faster, easier and cheaper. The same process is transforming fixed income. The past 20 years has seen markets embrace electronic dissemination of information. We are past the tipping point of having too much information, and because it is blindly delivered, the quality of it doesn’t have to be high. Initially, it was about quantity to promote dialogue, but now tools exist that allow market participants to better control and target the information they are sending. As more users and markets embrace new capabilities, participants will better filter what they consume and promote to individual users.

The role market makers play will also change, and we will continue to see an evolution in how trading desks operate. The adoption of DLT/AI and other new technologies will accelerate the move to quality from quantity. From a trading perspective, the market has all the protocols that it needs. There will be a move to request for stream (RFS) for the more liquid part of fixed income markets, continuation of RFQ for medium liquidity areas and bilateral negotiation for less liquid; because participants will have high confidence that they are in a true negotiation based on improved pre-trade insight. New technology will continue to stimulate transparency, drive efficiency and create volumes in parts of the market it has opened up.

Andy Mahoney, managing director, EMEA, FlexTrade Systems: Next year will see further strides towards building the next generation of the trader desktop, with the end-goal being to improve, extend, and complement the skillset of the trader. The speed at which technology can be developed and delivered has accelerated, and what would have been considered impossible just a handful of years ago is now commonplace. Innovations such as OpenAI translate natural language into code, which can interact with an API seamlessly, blurring the lines between humans and machines. Combined with FDC3 2.0 intents fuelling the next generation of interoperability and single, seamless workflow-led design between OMS, EMS and interlinked applications, it’s an area we expect to see rapidly develop in 2023, providing the next wave of innovative, trader-centric solutions. 

Mark Govoni, chief executive officer, Liquidnet: Rising operational costs, heightened market volatility and increased regulatory burden has led to a wave of mergers and acquisitions in the asset management industry, prompting buy-side firms to review their trading functions and find a way to do more with less. In this environment, multi-asset trading has been gaining momentum and as such, trading desks are evolving to accommodate this shift. One challenge that remains is the need for cross-asset platforms to be able to excel across all asset classes, with high quality and consistent coverage, which can be difficult as technology, pricing and access to liquidity varies across asset classes. Technology will be key to ensure the shift toward multi-asset trading is seamless across the buy- and sell-side. However, the expert human trader will continue to play an essential role in helping execute complex trades and larger blocks, against a backdrop of increased volatility and a hybrid working model. In these conditions, the buy-side and sell-side will need to collaborate closely together to create a more efficient trading ecosystem, bring innovation to the market and allow multi-asset trading to flourish.