Staff from capital markets research and consulting firm TABB Group share their thoughts on the technologies and trends that will have the biggest impact in 2018.
“Robotic process automation (RPA) provides greater opportunity to the buy-side (particularly Tier 2 and 3) to automate repetitive processes, as simplified, user-enabled self-service interfaces integrate more efficiently with legacy systems – all resulting in faster delivery of process automation, integrated with the cloud.
“RPA vendors win in 2018 – particularly those with a focus on financial services – as firms begin to look beyond task automation toward RPA for the enterprise.
“Banks focus on big data as their top priority in 2018, while the buy-side prioritizes cloud computing, and the sell-side invests heavily in Artificial Intelligence (AI), all at the expense of DLT development.”
Dayle Scher, Analyst
“Blockchain: A central bank will launch a cryptocurrency. Blockchain will move into production in capital markets, with likely use cases being, trade finance, syndicated loans or issuance & corporate actions.
“Cloud: Hosting capital markets’ workloads in the cloud will be the norm. Alibaba will move into the ‘top three’ of global cloud service providers.
“RegTech: Open banking and PSD2 results in Europeans able to manage their finances through social media or other non-bank apps. Overlapping, cascading and sometimes contradictory regulations, including MiFID2 (yes, compliance efforts continue in 2018), GDPR, PSD2, FRTB, BCBS 239, CAT etc. will force firms to finally address data architecture issues, embrace big data approaches and utilise public cloud.
“AI: As Brexit approaches, many capital markets roles axed in London will be replaced with AI, not new EU-based staff. Meanwhile, as cloud providers compete to make AI user-friendly, approaches like ML, NLP, and RPA will be integrated into most capital markets workflows.
“Funding: Fin-tech investment continues to stay strong in total dollar terms with the focus shifting from seed to later stage investments. Investment in B2B FinTech heats up while B2C levels off as it matures, meanwhile corporate venture investing will continue to grow.
Monica Summerville, Head of European Research
“Stagnant FICC trading revenues will receive a welcome boost from QE tapering and rates rises. The rise in average daily trading volume will not be enough to rescue sell side and HFT trading business models, leading to many more partnerships and alliances between market makers as they focus on efficiency and price formation.”
“These new integrated platforms will provide the infrastructure for a revamp of best execution analytics led by MiFID II, though full transparency and venue dynamics will still not be clear by year-end. Nevertheless, this will create a virtuous circle that will lead to a quantum leap in O/EMS for fixed income. Like the US, over the implementation period, we are likely to see trade size decrease and migrate to regulated venues and exchanges.”
“We will finally see real momentum and development of futurized products and ETFs on the exchange, once again driven by the availability of data and the emergence of a two-way market.
“Voluntary clearing will continue to increase, as the dynamics of NDFs, inflation and other derivatives become affected by margin and collateral rules.”
Radi Khasawneh, Analyst
“The MiFID II reforms will change virtually every aspect of the equities business globally. European equity market structure will deteriorate within 6 months of go live as SIs will trade against the more liquid equities directly leaving the exchanges to be the execution venue of last resort.
“Instead of eight per cent of European market liquidity being executed in the dark, the SI interaction rate will be closer to 30 per cent. At a level of 20 per cent, exchanges will mount an initiative to change the SI execution model. This will start MiFID 3.
“Less than 5 analysts will be able to obtain premium pricing per sector, others will migrate to the buy-side or leave the business. Firms will backfill with near or off-shore staff (low cost/less experienced).
“Algo flow will become more competitive. Traditional HFT type firms will enter this business and be very competitive.
Execution value will migrate to blocks, capital and sourcing liquidity.
“Global large brokers will differentiate their business based on their Central Risk Books and their ability to provide capital. Balance sheet and risk management will be critical.
“Many firms (both buy and sell side) will not be able to sustain their business as is over the next 2 years forcing consociation and or focus.”
Larry Tabb, Founder and Chairman
“MiFID II leads to major consolidation among buy-side and sell-side institutions; meanwhile small-cap stocks suffer with less research produced on them.
“The SEC will focus on cybersecurity and capital formation with considerations about the CAT and relaxing regulations regarding the IPO process taking centre stage.
“Cryptocurrency trading hubs grow in Singapore, Switzerland, and Japan. We will see the first bitcoin ETF based on bitcoin futures.”
Valerie Bogard, Analyst
“A combination of macroeconomic factors such as rising interest rates in the US, the implementation of MiFID II in Europe, and an increased focus on data will spell change for the FICC status-quo of recent years. A trend of increasing swaps volume on SEF venues should continue as market participants look to leverage electronic workflow efficiencies and begin to expand the scope of products traded on electronic venues outside of what is mandated.
Fixed income ETF momentum will similarly continue to build as the market becomes more educated on the products and liquidity they can provide. Best execution innovation for fixed income markets will be top of mind for US investors looking to stay ahead of the curve as much of the market grapples with the new standards under MiFID II.”
Colby Jenkins, Analyst