The TRADE predictions series 2024: Front-to-back technological enhancements

Participants across Tradeweb, Bloomberg and VoxSmart anticipate front-to-back technology advancements will be a key shift in 2024, diving into demand for support of the buy-side’s entire investment book and changes in trading protocols.

By Editors

Kerim Acanal, global head of emerging markets, Tradeweb

The request-for-market (RFM) protocol will continue to be the next frontier for electronic trading in emerging markets. Having gained significant traction over the past few years, the protocol allows buy-side participants to ask dealers for a two-way market rather than a price based on one direction. The use of the RFM protocol grew from 59% to 71% of total business from Q3 2022 to Q3 this year, with the RFQ protocol usage falling from 41% to 29%, whilst the business grew by 92% across that same period. This is illustrative of the markets’ protocol preferences changing, and RFM proving its worth as an important tool.

Electronic trading protocols, like RFM, are combatting some of the challenges linked to trading in emerging markets, such as geographic fragmentation, less transparency in pricing, and language barriers. We’re expecting to continue to see an uptake of this protocol in local cash bond markets particularly, helping traders to tap into an expanding liquidity pool. In today’s ever-changing financial landscape, RFM allows clients to not reveal the direction of the trade, therefore minimising the footprint of their transaction.

Raquel Alves, global head of buy-side OMS, Bloomberg

Buy-side firms are seeking partners that can support their entire investment book and in 2024 we expect they will increase efforts to consolidate vendors and prioritise providers that can offer a comprehensive front-to-back operating model. Buy-side firms are seeking partners that can work seamlessly with their in-house ecosystems and can not only support their current investment assets, but also provide the flexibility and customisation opportunities to scale with them.

A major driver of this trend is the surge in complexity of investment strategies being utilised in firms of all sizes, whether from quant investing, ESG mandates or the diversification through alternative assets. Buy-side firms are also grappling with challenges around a complex market backdrop, the emergence of new technologies and an evolving regulatory landscape. Success in this environment requires solutions that can scale, flexibility in workflows, interoperability of services through APIs, increased transparency and analytics for portfolio performance. When buy-side firms narrow down their technology partners of choice, they will be laser focused on differentiating capabilities within these areas to set themselves apart and deliver alpha for their own clients.

Oliver Blower, chief executive officer, VoxSmart

In the face of unprecedented fines levied against investment banks for the misuse of messaging apps, attempting to ban an entire generation’s communication behaviour next year is shortsighted and misguided. The $549 million penalties underscore the urgency for a paradigm shift in risk management. Rather than suppressing evolving communication channels, banks must embrace adaptability. It’s time to recalibrate risk strategies to align with modern trading practices, fostering a culture of responsible communication and innovation instead of futile attempts to curb the inevitable evolution of technology-driven collaboration.

However, it is not just the WhatsApp issues that needs to be tackled in the New Year. It has been beyond frustrating that every man, woman and their dog have been fixated with talking about AI in the abstract in 2023. If you are a senior executive within an investment bank being bombarded with all this AI literature in January, where on earth do you start? Until the industry as a whole starts having a grown up, pragmatic and practical debate on specific use cases for AI in 2024, then we will continue to be left spellbound by grandiose and vacuous statements about how the technology is going to revolutionise capital markets.

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