The TRADE’s Crystal Ball 2021: Buy-side and trading venues

Gaze into The TRADE's crystal ball for insights from buy-side market participants, exchange operators and trading venues on their predictions for the year ahead.

Predictions are a bit of a dangerous game after the curve balls 2020 threw at us! However, experience has taught me that the City is a resilient beast, and we will find a way forward despite the COVID-19, Brexit and recessionary headwinds coming our way.

One of the biggest question marks for Aquis Exchange is whether pan-European share trading will revert to its pre-MiFID I pattern, as looks likely now, or if the actual domiciles of the shareholders of the companies that are listed across Europe will end up being the decisive factor in where trading is ultimately conducted. As we have a UK and a French MTF, Aquis is covered in either scenario but a bifurcation of liquidity is not in the best interests of the end investor.

Also, speaking as the CEO of an IPO market for growth stocks – Aquis Stock Exchange – I am also concerned about the persistent rumours in the UK that the Government is planning on increasing Capital Gains Tax. Such a move will have a very detrimental effort on entrepreneurship and is a massive disincentive for investors in UK PLC – just at the very moment the economy needs small and medium sized businesses to flourish the most.
– Alasdair Haynes, CEO, Aquis Exchange PLC

Markets this year have adapted and developed even greater resilience and the expectation is that markets will continue to evolve, develop and improve. These changes will be driven by regulatory amendments, technological enhancements and greater efficiencies by venues and market participants alike. 

Data and automation opportunities will continue to be critical in both pre trade decision making and the validation of decisions for traders. The continued efforts of firms around diversity and inclusion strategies and engagement will result in the markets being in a far stronger position moving forward and will be additive to future market innovations.
– Simon Steward, head of European equity trading, Capital Group

Acquisition and consolidation of market operators will continue in 2021 as exchanges look to diversify into new products and technology. Cryptocurrencies will extend their popularity as an alternative investment and we anticipate continued significant growth in SIX crypto ETP listings and trading.

Competition in Swiss equity trading will likely return, which SIX welcomes. We anticipate the Swiss Stock Exchange will continue to have the tightest average spreads though these may initially weaken as liquidity providers recalibrate for fragmented markets. The fragmentation of liquidity will likely alter order book dynamics with increased order to trade ratios, orderbook “noise” and greater instances of ghost liquidity. 
– Tony Shaw, executive director, London office, SIX Swiss Exchange

How 2021 will look will depend largely on whether the industry continues with or moves on from the significant developments we saw in 2020: Is there a sustainable new retail interest in the markets, or was the ‘Robinhood Rally’ just the ‘Draft Kings’ gambler looking for an outlet with no sports to bet on during the lockdown?

Three significant new exchanges launched this year; will this lead to more fragmentation, or is this innovation that solves market problems? In block trading (our neck of the woods), independent venues have been acquired by broker-dealers and exchanges. As the lone independent left, we’ll be watching how the buy-side works together with a new regime coming to Washington.
– Jonathan Clark, CEO, Luminex Trading & Analytics

At Amundi Intermédiation, we believe that 2021 will definitely position the outsourced trading as a high potential market in the investment management industry. The disruption emphasised by the recent COVID-19 pandemic are in fact leading many investment managers to re-think their operational models, with particular reference to the internal dealing function.

The impact of rising technology costs, the increased challenge of finding liquidity and the required operational scalability has renewed asset managers’ interest in delegating this function to third parties and accelerated the trend. The benefits of this operational model are now appealing to a much broader range of clients in terms of size and geographical diversification.
– Gianluca Minieri, deputy global head of trading, Amundi Intermédiation

The last few years have taught us to expect the unexpected, but we are hopeful 2021 will begin with a resolution on the UK and EU’s future relationship, providing much needed clarity to the industry. Having been prepared for all Brexit scenarios for some time, our focus will be on ensuring a smooth and orderly transition to the post-Brexit world and, while it may take time for activity to stabilise, we expect to see investors and volume return to Europe’s equity markets with the political uncertainty removed.

We are also hopeful that 2021 will see positive developments on the regulatory front. This includes concrete steps being taken towards the development of a consolidated tape and a sensible approach formulated for the MiFID II review, which keeps alive the principles of venue competition and choice to the benefit of end investors.
– Dave Howson, president, Cboe Europe

The NDF market has been in growth mode for several years, and we expect this trend to continue, if not accelerate in 2021. The maturation of this market can be seen not only in the growth of traded volumes, but also in the increase in pre- and post-trade channels.

Electronification of NDFs has increased, along with the number of venues and trading formats (CLOB, bespoke liquidity on ECNs, etc.). Central clearing of NDFs continues to grow, and that will accelerate with the adoption of Uncleared Margin Rules. And this is before we factor in the boost from macroeconomic conditions.
– Kevin Wolf, CEO, Euronext FX

The impact of COVID-19 triggered record days of trading activity in 2020 across London Stock Exchange Group markets. Dark block trading became truly mainstream in the search for quality liquidity with Turquoise Plato seeing record activity in November and I expect this to continue as the importance of data and the ability to real-time measure performance continues to grow in 2021.

Looking forward, sophisticated interrogation of big data and understanding of the inherent value will be a fundamental theme, especially in a post-Brexit environment where routing behaviour will need to evaluate new venues and re-calibrate quickly. Data science will drive this routing behaviour and product development. Depending on the outcome of ongoing Brexit negotiations, traders may need to navigate fragmentation of liquidity across Europe and the risk of regulatory divergence.
– Scott Bradley, head of sales and global business development, LSE cash secondary markets and Turquoise, London Stock Exchange Group

Post-COVID (around mid-2021), the adoption of technology forced upon us by trading remotely and working from home will take a breather. Humans are creatures of habit, and in the post-pandemic, I believe they will fall back into the ‘old ways’ of doing things quite quickly. The technology is here and readily available and it will be adopted, but at a far-slower pace than perhaps people think.

Elsewhere in 2021, the buy-side will continue to increase their use of electronic trading methods, with suppliers offering more and more sophisticated means to do so. Smart request for quotes (RFQ), synthetic central limit order books, dark pools, program (list) trading will also increase.

Best execution analysis will be used to better assess and evidence best execution within fixed income, while equity-style transaction cost analysis (TCA) will be discarded as being not fit for purpose… finally. Finally, automated trading will become an even bigger trend as the underlying technology and decision engines get smarter, and the buy-side is increasingly comfortable with the concept.
– Carl James, global head of fixed income trading, Pictet Asset Management

If 2020 has taught anything, it’s to expect the unexpected. This will continue to apply as we head towards 2021. Technologically advanced firms have emerged as leaders in the shift to working from home, and, as we’ve all settled into a hybrid working environment with an increased proportion of time spent working remotely, I expect technology to continue to act as a key differentiator in 2021.

Buy-side firms that have invested in smart tools, using AI and machine learning to access research and process data, may be best positioned to make more informed trading decisions, potentially leading to enhanced performance. This proved critical at a time when high volatility resulted in a dramatic increase in the cost of trading earlier this year.
– Mark Pumfrey, global head of equities, Liquidnet