By Pia Hecher.
Market intelligence provider Greenwich Associates has announced this year’s market structure trends, reporting that markets will remain volatile and exchanges will become more important.
The analyst firm anticipates streaming prices will provide a greater resource for asset managers. It states that a growing number of non-bank market makers and dealers is streaming continuous two-sided quotes for on-the-run US Treasuries, off-the-run US Treasuries and US corporate bonds. This enables continuous trading and allows for liquidity makers and takers to connect effectively.
Greenwich Associates emphasises that producers, distributors and consumers of data will attempt to gather even more data in 2019 and analyse it with the help of artificial intelligence (AI) and machine learning in an attempt to use data to make a profit in the markets.
US regulator, the Securities and Exchange Commission (SEC), recently voted to expand order-handling disclosure stipulations for broker-dealers in equities and may introduce a Transaction Fee Pilot in 2019 to determine how exchange fees affect trade performance and routing behaviour. Greenwich Associates thinks trade will hence become more data-focused and transaction cost analysis (TCA) will become increasingly embedded in the equity workflow.
Greenwich Associates expects exchanges to grow in size this year, with gains to be made in over-the-counter (OTC) traded products and the sale of index-related data and products. The firm reports - with the end of post-credit crisis era- that growth and volatility will put the new market structure - created by regulations like Dodd-Frank and MiFID II - to the test.
Brexit will likely worsen economic conditions, cause market volatility and shift financial services jobs away from London according to Greenwich Associates. A no-deal Brexit would affect cross-border financial services even more negatively, in particular the clearing of Euro-denominated interest-rate swaps, the majority of which are cleared in London.
The firm estimates LIBOR, which is currently tied to financial products worth US$350 trillion, will die off by 2020. This will require hedging vehicles to change. It will also render some swaps and futures products less profitable and trigger a battle between exchanges to control new Sterling Overnight Index Average (SONIA) and Secured Overnight Financing Rate (SOFR) contracts. The firm expects existing contracts to demand renegotiation, causing an operational burden.
While cryptocurrencies and blockchain-based tokens will not replace fiat currencies, Greenwich Associates suggests institutional trading of cryptocurrencies will become more established as regulators add clarity in 2019. The firm assumes that distributed ledger technologies (DLT) projects created five years ago will yield positive results in areas where their technology is applicable.
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