Onyx, JP Morgan’s blockchain business unit, and fintech Broadridge have partnered to offer JPM Coin as the settlement mechanism for Broadridge’s DLR (Distributed Ledger Repo) platform.
The two firms have successfully tested use of JPM Coin with DLR, and it is expected that JPM Coin will be available to Broadridge users as a settlement solution by June 2024. The solution involves synchronised settlement across the two blockchain networks achieving delivery vs. payment (DVP) cross-chain, on the basis of “locking” cash and releasing it synchronously with the asset transfers.
Nelli Zaltsman, head of platform settlement solutions at Onyx
Nelli Zaltsman, head of platform settlement solutions at Onyx, said: “We are delighted to launch our synchronised settlement solution using JPM Coin through our work with Broadridge. At Onyx, we look to be the foremost provider of Cash-on-Chain solutions to existing and steadily growing digital asset platforms globally.”
Horacio Barakat, head of digital innovation at Broadridge, said: “DLR continues to drive the transformation of global repo market infrastructure and this collaboration with JPM Coin represents another step in the digitisation of repo markets. This next innovation will power DLR as the ubiquitous intraday platform, leveraging existing market infrastructure in addition to new digital cash solutions.”
The pair said this is the first instance of JPM Coin providing settlement capabilities to an external digital platform and that given the lack of “cash-on-chain” solutions, this offering could act as a framework for other cash settlement solutions for other digital platforms going forward.
DTCC affirmed 83.5% of transactions by the DTC cutoff time – 9:00 PM ET on trade date – in April 2024, it has reported.
This figure marks an increase of eight percentage points month-on-month, from a 74.9% affirmation rate in March. With the industry just two weeks away from the T+1 implementation weekend, this signals significant progress, DTCC says.
The affirmation rate for prime brokerage saw the most significant month-on-month increase, rising by nine percentage points to 92%. This is due to continued real-time affirmation implementation by prime brokers, the organisation states
Investment manager auto affirmation rates also increased, up two percentage points from 91% in March to 93% in April. A further 59 investment managers joined the corporation’s institutional trade processing CTM auto affirmation workflow, bringing the total number of firms using the service to 458. Of this cohort, 350 are also able to use CTM’s match to instruct (M2i) workflow.
The (self) affirmation rates for custodians or investment managers remains the lowest of the three, reaching 62% in April. However, a 7 percentage point increase was seen month-on-month. This was the result of TradeSuite ID adoptions by investment manager firms, DTCC claims, with 2140 added so far over 2024.
Advising this group, DTCC says that it “reminds investment managers who will rely on their custodians to handle their affirmations to instruct those custodians according to their cutoff times so that affirmations are received by DTC’s cutoff of 9pm ET on trade date.”
The organisation concluded: “With just a few weeks until the T+1 implementation date, market participants should finalise their preparations, complete end-to-end testing and ensure the completion of operational readiness plans for T+1 weekend. DTCC remains committed to working with individual firms, regulators and key stakeholders towards a smooth, successful transition to T+1 later this month.”
Roland Chai, President of European market services, Nasdaq.
Nasdaq’s president of European market services talks to Global Trading about trends in the Nordic markets, how the region gets ahead with innovation and what other markets could learn from their example.
Roland Chai, President of European market services, Nasdaq.
What trends are you seeing in the Nordic markets?
We’re seeing improvement in the listing picture. Our IPO pipeline looks stronger now, for the second half of this year, and also 2025, which looks promising. Both Europe and the US have been in a bit of a dip there, we’re coming out of that. We see more M&A in the market, and more companies coming to market. At the beginning of the year, we saw strong movement in bond listings and corporate bonds. Now we’re seeing IPO coming to fruition. On the retail side, in terms of trading, retail participation continues to be really high in the Nordics. The Nordics pretty much lead Europe in retail household participation in markets. On the main market, retail trading is between 5 and 12%. On Nasdaq First North market, we see around 30% on average. It really shot up especially in Copenhagen, where it is now 55%. Nordic household participation in equity markets is about two times the size of the European average. The direct investments by Swedish, Danish and Finnish households are above 30% in public markets – the European average is about 17%.
If you look at other markets around the world, we see high retail participation. The US has about 50% of its holding in public markets, also through pension and 401k schemes. Generally, higher retail participation brings diverse liquidity to the markets. It’s all about how educated investors and retail investors are about small to medium caps. The industry has done a really good job in the Nordics about educating people about new companies, bringing new companies to market. Our retail investors understand risk capital and are ready to deploy risk capital for new ventures. You can see that in the innovation scene when you look at the number of founders and founder based startups in the Nordics.
Over the past 10 years, Nasdaq European markets have become the most active SME listing market. Nasdaq First North has about 500 companies on it, and we’re attracting some Irish listings and some German listings. What London achieved with AIM in the last decade is what’s happening in the Swedish market. That is very healthy for secondary trading, and for overall economic growth.
What makes the Nordic markets appealing to international investors? How does the region differentiate itself?
The high amount of retail participation is crucial to that. There’s liquidity, transparency, high participation and diversity. For example, Nordic pension funds actively invest in domestic equities.
So in the public market, you’ve got high retail participation, institutional, and pension funds. Then there’s investment funds and private equity coming into it. There’s a diverse liquidity pool, which attracts offshore investment because there’s a lot of people participating in price discovery and price formation.
What is Nasdaq doing to support alternative liquidity access in the Nordics?
We have the main exchanges, where you can trade on the lit pools. We also have our dark pool, Nordic@Mid, which has been steadily gaining market share in the Nordics since we launched it. There’s quite a significant proportion of trading done on dark pools. Aside from that, we offer smart order routing service and dark-lit sweep functionality. We help all our investors find liquidity, whether it’s on Nasdaq lit or dark markets, or liquidity away from us. We’re using technology in our platforms to provide as much liquidity sourcing for our customers. It’s down to customer choice and competition, providing the best liquidity formation. We have very good small and medium cap liquidity along with large cap liquidity. We’ve focused on setting up liquidity for all parts of the corporates., and we’re using things like auctions and liquidity provider programmes to generate and help increase liquidity in small caps, where there may not be the same kind of participation as in the large caps. We spend a lot helping all parts of the ecosystem and all parts of the corporates, we don’t just concentrate on the top 10 or 20 names.
How is the Nordic region dealing with liquidity fragmentation?
We focus on retail participation and diverse access to capital, bringing in those overseas investors. It’s a bit of a flywheel; you get the retail, you educate the retail, you have high participation, and overseas investors like the look of the market. Looking at institutional holdings—domestic equities, pension funds, insurance companies—creating that mix of liquidity helps.It’s really important. Unlike other markets, where there may be very little retail participation or less pension funds, all aspects of those markets are encouraged. That allows us to differentiate and create a healthy ecosystem. We spend a lot of time with our constituents, the buy side and the sell side, within Sweden, Denmark and Finland, working on how we can improve the market. There’s significant investment going in there. With the IPO pipeline that we have, bringing companies to market is like bringing more product to market. Whether it’s ETPs or corporates themselves, that’s what people get excited about: being able to participate in new companies and new names. When we look at the listings, we’re number one in biotech, MedTech, and renewable energies. In a lot of those new tech segments of the European economy, we’ve got an educated, healthy risk capital that attracts those companies. It’s a flywheel from the listing side, and it helps the trading as well.
What technology trends are you seeing in the Nordics?
Using cloud and artificial intelligence is really crucial. That can give our clients, institutions and retail traders better tools to execute and find liquidity. We’re looking to give our clients better tools to find alpha or risk manage their positions, and we believe technology is key to that. Our clients are doing that as well – there are huge investments being made in artificial intelligence across the board institutionally
Are the Nordics ahead of other regions when it comes to developing and implementing technology?
I wouldn’t say that the Nordics are ahead of everyone else in the world, but I think that there is a very healthy culture of trying new things, developing them and innovating. In terms of overall innovation, I think yes. There are several components to this. There’s a founder-led culture, a lot of innovative companies coming out. There are highly skilled universities and good graduate systems, so there’s a very well trained pool of expertise. The ability to generate innovation is very strong here. We’re also able to use a US technology base and the intellectual capital and IP that we have there in tandem with Sweden to innovate.
In a Broadridge survey earlier this year, Nordic market participants were split on whether globalisation or regionalisation would dominate over the next three years. What are your expectations here?
I think it’s going to be a mixture of both. In equities, it comes down to where companies are listed and what you’re trading. In every country, certain parts of the institutions and retail will be familiar with the local names. People will choose to trade names they’re familiar with, that they’ve done the analysis for. There’s a natural tendency for that.
In equities trading, I think there’s going to be a more pan-European trading approach, and better management of that. Nordic investors are highly educated and have a global outlook. There’s regional specialisation in terms of equities trading, but I don’t think that’s necessarily fragmentation.
What should European exchanges learn from Nordic market structure? What should they implement into their models?
There’s a debate about the Capital Markets Union in Europe. In the post-trade area, there could be more consolidation and efficiencies. Centralisation and being able to put better platforms in place technology-wise is important, and we’ve done a lot of that. Across European countries, there could be a lot more incentivisation for household investments in equity markets both on the pension side and with taxation incentives. It could be something like an Investment Savings Account (ISK) system, which simplifies retail investors’ investment taxation with special rules, Building the household share of equity markets and pension funds is also really important. A lot of authors around the Capital Markets Union have stressed that.
We believe that you’ve got to have connectivity with your local markets. Whatever country you’re in, having specialisation or strength in certain parts of the economy and certain companies, will resonate with the investor. There will be specialisation across regions or other areas. How we’ve seen liquidity develop, there has to be strong resonance between markets and there has to be support for local markets.
Where do the Nordics need to improve?
It’s a European issue, but more needs to be done around the consolidation of CSDs. The US has a single CSD, DTCC, and is moving to T+1. In Europe, you’ve got at least 27 depositories underpinning pan-European markets. There are opportunities for consolidation and scaling there, which would reduce the post-trade element of transaction costs. The industry has done a lot since the onset of MiFID and EMIR to consolidate or compress pre-trade costs and clearing costs, but in terms of settlement costs and CSD costs, they remain relatively high.
Murray Roos, group head of capital markets, has left the London Stock Exchange Group (LSEG).
Murray Roos
He has held the role of group director since April 2020, before which he was global co-head of equities and securities services at Citigroup. He was also head of global equity sales and trading and the multi-asset structuring group at the firm.
Earlier in his career, Murray held a number of senior roles at Deutsche Bank including EMEA head of equities, head of emerging markets equities and global head of prime finance.
LSEG confirmed Roos’s departure when contacted, noting that current head of post-trade Daniel Maguire would take on responsibility for capital markets. LSEG declined to comment further.
Barclays Bank has gone live on CLS’s cross currency swaps (CCS) service.
The CCS service, an extension of the CLSSettlement payment-versus-payment settlement solution, mitigates settlement risk for CCS transactions.
Integrating CCS flows into CLSSettlement facilitates multilateral netting against all other FX transactions, the company says, providing liquidity optimisation and reducing daily funding requirements.
The CCS service has seen considerable activity over the past year, as a result of increased efforts to mitigate settlement risk through public policy. CLS reports a 48% increase in the values of CCS submitted to CLSSettlement, which it states demonstrates industry support for the service.
Lisa Danino-Lewis, chief growth officer at CLS, commented: “Barclays Bank going live on our CCS service is a positive step in our continual work toward making the global FX market more resilient and efficient.
“The adoption of our CCS service by Barclays demonstrates the value and trust placed in our risk mitigation and liquidity management solutions by the industry. The growing number of institutions, as well as growing volumes on the platform, underlines the industry’s commitment towards minimising settlement risk in the FX market.”
Michael Pollak, head of cross currency trading at Barclays Bank PLC, added: “As markets continue to navigate an uncertain period, being able to mitigate FX settlement risk via CLS’s CCS service is a vital part of our risk management practices. Through multilateral netting, we can also optimise our liquidity, reduce our funding requirements and remove friction from the market’s infrastructure. We look forward to the continued benefits the service will bring to our operations and the wider industry.”
Nasdaq’s Nordic and Baltic equities QuoteView is now available through Nasdaq Data Link. Powered by BMLL data, this is the first of its kind for the region, and covers both primary trading venues and MTFs.
QuoteView provides T+1 consolidated best bid and offer (CBBO) data for equity markets, aggregated by price and with 10 levels of depth at a millisecond timestamp granularity.
Its consolidated order book includes all lit quotes across primary venues and MTFs in Sweden, Denmark, Finland, Iceland, Estonia, Latvia and Lithuania trading Nordic and Baltic securities, along with the original listing location.
Using the service, investment banks and brokers are able to identify addressable liquidity and enhance their data and analytics processes, the company said. This will enable value-add across research, algo optimisation, trading analytics and risk parameters.
Issuers can use the platform to compare products and listings across different venues and currencies, while systematic traders can simplify data collection for equity and ETP stock performance across venues.
Nasdaq Data Link grants users access to more than 250 data sets via API.
The announcement marks the continuation of the companies’ partnership; Nasdaq’s venture investing programme Nasdaq Ventures invested in BMLL’s Series B funding round in Q4 2022.
Paul Humphrey, BMLL CEO, told Global Trading: “Market practitioners are increasingly relying on data-driven insights. By providing Nordic and Baltic Equity QuoteView, Nasdaq enables firms that trade Nordic and Baltic securities to gain insights on the liquidity available to them and understand market behaviour quickly and easily without the burden of data collection, curation or storage.”
With numerous high-profile regulatory penalties recently imposed on bulge bracket banks for market misconduct, Gill Wadsworth asks – how does the buy side respond to concerns over wrongdoing, and what are the consequences when counterparties break the rules?
Under surveillance
It has been a difficult quarter for some of the biggest names in investment banking, with the US regulators handing out millions of dollars in fines for illegally leaking information and failure to adequately identify market misconduct.
In March 2024 JPMorgan Chase & Co received a US$348.2m penalty from the Federal Reserve and the Office of the Comptroller of the Currency for deficiencies in its trade surveillance programme which ‘constitute unsafe or unsound banking practices’. Misconduct has not yet been reported, with the Fed demanding the bank investigate further and report on its own analysis.
In January, Morgan Stanley was hit with a US$249m fine from the Securities and Exchange Commission (SEC) for a multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as block trades.
Gurbir Grewal, SEC
The leaks allegedly generated over a hundred million dollars in illicit profits for the bank and – according to Gurbir Grewal, director of the SEC’s Division of Enforcement – “eroded investor confidence and undermined market integrity”.
This negative impact from leaking information around a block trade ahead of time hits both the seller and other market participants, and the beneficiary is the receiver of the information.
A head of trading, speaking anonymously to Global Trading, says: “Receiving this information would give [the receiver] more time to analyse the risks and understand the pricing, so they can potentially participate larger or smaller, given their analysis. They do have a window of time and a head start. It’ll hurt both the client that’s got the block trade and the other participants who are trying to take trade down.”
Grewal says the SEC is committed to “holding wrongdoers accountable, no matter how complicated the fraud or sophisticated the perpetrators”. But given regulatory intervention only comes once the damage has been done, the buyside may need to review the processes they have in place to protect against misconduct in the first place.
Aaron Steinberg, head of prime services, sales and capital introductions for BNY Mellon’s Pershing, says it is best practice to continuously evaluate counterparties and work with several brokers to avoid exposure to a single party.
“Markets are constantly evolving. Think of the changes in the market over the past few years — from rising interest rates and inflation to geopolitical issues and regulatory changes. It’s a lot, but the core tenets of diversifying and evaluating your prime brokerage relationships remain the same. You want to have diversification of risk, of securities lending access, of financing and balance sheet,” Steinberg says.
Keeping honest
Asset managers typically benchmark their brokers either internally, or through independent assessments from third parties that look at, among other things, asset safety, trading and exaction and client service.
James Pike, head of business development at Taskize, a fintech focused on improving trading workflows, says: “Asset managers conduct – to varying degrees and complexity – quarterly benchmark exercises, looking at settlements, corporate actions, how quickly you execute trades, how quickly you settle trades. They use that data to give a ranking based on how brokers do in each of the subcategories.”
Most asset managers are unwilling to talk about their risk mitigation and trade surveillance processes, at least on the record.
However, one asset manager, speaking anonymously, concedes that it is extremely challenging to identify a dealer who has traded against the buy-side desk – or had passed information onto others who would do so.
“Whether you could you see a firm trading ahead of you on a block via the TCA report would depend on the size of the firm doing it and the discount on the trade,” they say. “The most any asset manager would do in response would be to just cut the broker off – tell them they’re in the sin bin for a number of weeks or even months.”
Pike says there are anecdotal examples where asset managers have refused to work with brokers operating in ways that could cause reputational damage to their operation.
“If brokers have done something that could taint the asset managers’ business model, they might be frozen out. That means a financial penalty for the broker because they lose business from which it might take them a long time to recover.”
Pre-empting misconduct
To avoid frontrunning, asset managers can use pre-trade analytics tools to assess the potential market impact of their orders before execution. By analysing liquidity conditions, market depth, and price dynamics, asset managers can identify situations where front-running may be more likely to occur and take appropriate precautions.
But even these sophisticated tools struggle to pre-empt misconduct.
Pike says: “It’s quite hard sometimes to predict when a firm is doing something bad. How do you look down the pipe and see something that’s nefarious?”
Plausible deniability over the reason for activity can make prosecutions untenable.
“If it’s non-public information and the recipient of that information is trading on it, that’s technically insider trading. It all depends on how it gets classified,” noted one trader. “However, if it’s just the inefficiencies of the salesperson calling the counterparties and building the book, claiming, ‘I called two counterparties then I went to lunch’ that might not be considered inside information, just the slow process of data coming to the market.”
Pike says the surveillance market is evolving, with the possibility of a single platform that holds all exceptions data, making it easier to identify who is at fault when something goes wrong.
“Our tool can be used to manage exceptions and ultimately supervise exceptions, particularly with regard to what’s happening between the asset manager and the custodian, but also them and the broker dealer,” Pike says. “We could be used as a platform for all the benchmarking exercises which would give all parties the same data set making it unequivocal in terms of whose fault [wrongdoing] was. Now it’s all done over email, so it’s quite hard to work out what the root cause was.”
But even where asset managers do identify frontrunning, the complexity and depth of their relationships with the sell-side may prevent them from acting.
One portfolio manager says there are several reasons legal action around trading infractions might be avoided.
“Firstly, it could run into higher priorities or conflicts. One example might be that the asset manager could be running billions of dollars in assets under management for the bank in question. Another could be that the bank has discretion over access to securities of its corporate clients and this could impact investment capabilities. Hurting the relationship at a higher level than the trading desk could damage these sources of revenue generation.”
And there is also the question of the efficacy of using fines to punish institutions with deep pockets and that make large profits from illegal activity.
The SEC says it does not comment on “active rulemaking”, while JPMorgan declined to comment, and Morgan Stanley did not respond to requests for interview.
However, a surveillance company employee, who asks to remain anonymous, says: “When you think about how much [the banks] make from this type of behaviour, then what difference does a few million dollars in fines make?”
Portfolio managers also query the power of financial penalties as a suitable deterrent, with one suggesting that only custodial sentences will bring misconduct to an end.
One observes: “If no-one was put in jail over the global financial crisis, would anyone get put in jail for this?”
That being said, the general consensus appears to be that “things were much worse before” and, despite the fines seen recently, the ‘Wild West’ element has largely been removed.
Steps such as the introduction of the Senior Managers & Certification Regime (SMCR) in the UK and equivalent regulatory developments in other markets have led to a higher degree of individual accountability (you really can get put in jail these days), while the rapid growth of data has increased transparency and made it harder to hide misconduct.
And finally, concluded one market participant, with tongue perhaps slightly in cheek: “Bank bonuses just aren’t big enough anymore to make bad behaviour worth it.”
Euroclear UK & International has appointed Chris Elms as CEO, following ten months as interim CEO.
Elms has more than 25 years of industry experience, all of which has been spent with Euroclear and CRESTCo, which was acquired by Euroclear in 2002. He has held a range of senior positions in the company, including deputy and interim CEO of Euroclear UK & Ireland, group head of IT service control and head of IT production services for the UK.
Between 2015 and 2018, he was chief risk and compliance officer for the DTCC-Euroclear GlobalCollateral joint venture.
Valérie Urbain, group CEO, commented:”Chris has demonstrated exceptional leadership skills, strategic vision and a deep understanding of the company’s goals, objectives and values while interim CEO.
“Chris and the Euroclear UK & International management team have made significant progress in developing a comprehensive commercial and operational strategy designed to transform Euroclear UK & International into a more resilient, fully digital UK financial market infrastructure. I have every confidence that under Chris’ leadership Euroclear UK & International will continue to go from strength to strength.”
Robert Hingley, chairman for Euroclear UK & International, added: “On behalf of the Board, we are delighted that Chris will be able to embark on this new chapter of transformation and growth driven by the team’s unwavering commitment to market stability and client satisfaction. As part of Euroclear UK & International’s ambitious strategy, transformation of the CREST system will increase resilience, client value and market efficiencies.”
Simon Steward, head of European equity trading, Capital Group.
Simon Steward, head of European equity trading, Capital Group.
Capital Group’s head of European equity trading on the impact of regulation and technology on equities trading, and the perennial essential skills needed to be a successful trader.
What does the trading desk of the future look like? Five-ten years?
If we look at the themes that are currently in play – the growth of multi-asset desks and the utilisation of greater technology – this will likely be the direction of travel and natural evolution of the buy side trading desk as asset classes continue to trade with greater similarities and as market structure appears to converge where possible.
In my view, the important thing to acknowledge is that there is no one-size-fits-all approach to trading desk composition for firms. What works for one may not work for another. The main drivers here are an organisation’s priorities or investment methodology. Continued focus around costs, regulation and market complexity will likely continue to fuel outsourcing for some firms and technological advancement primarily in the form of AI, will also play a key role.
As we have seen over the last decade, the buy side trading desk has evolved regarding requirements and approach.
What has the most impact on the evolution of equities execution? Regulation or new technologies?
In my view, equity execution evolution over the last few years has been driven in cycles by different focus points. MiFID II was a significant piece of regulatory change that changed the landscape in Europe in the way many firms approached their trading.
From MiFID II, we saw increased competition in the form of new venues and the requirement of robust SORs and an equally robust need to understand and evaluate the execution outcomes to validate your best execution process. We then moved to the next evolution around a greater focus on latency and a change in market composition regarding market participants which had implications on the way buyside firms approached the markets in Europe and trade execution.
In my perspective, it appears as if we are now entering a new phase driven by greater internalisation coupled with the growth of bilateral trading. Currently, these decisions are being led by industry themes on explicit costs, margin erosion and utilising advantages of scale amongst industry participants. As in the previous cycles, buyside firms are continuously evaluating execution outcomes to ensure the current market structure and market approaches are valuable and fulfilling their best execution obligations. As always, asking the right questions in these cycles is important to build a greater understanding of the decisions behind them.
With a focus on technology, this now as in the past will enable some firms to differentiate themselves from an execution standpoint. Once again, we have seen several cycles over the last decade around greater efficient content delivery. Trader automation tools, trader dashboards and now the more mainstream approach of AI utilisation in the trader toolkit will form the latest cycle. The speed of adoption will differ amongst firms based on their own internal AI policies and also their ability to embed AI into their workflows. It very much feels like every firm is on its own journey currently.
What tools/skillsets are most desirable over the short term to ensure your desk is future-proofed? What people skills and technologies will be most useful?
The skillsets I consider as important for a trader have not changed. The ability to be a strong communicator both internally and externally is important, as is the requirement to disseminate information in a fast and accurate way. The ability to build and maintain personal relationships, again both internally and externally, is crucial, as the need for trust and reliability has long been a defining factor within our industry, and I have not seen that change throughout my career.
Having the ability to listen is a somewhat downplayed skill, but it’s so key. The small subtleties in instructions or reading between the lines around the interpretation of market information can be the difference sometimes between a good or bad execution. I touched upon adaptability earlier and believe that this is a key skill as we continue to utilise new technologies in many different forms.
It’s invaluable to be open-minded and progressive in how we engage with these tools. In my experience taking traders along on the journey of new technology deployment is key to solid implementation of said technologies. You want the trader to have a say in the design as they will be using it day in and day out. Market structure awareness is important as we all now spend more time understanding where and why things are traded in certain venues or levels; knowing to be able to ask the correct question is critical. The final area and skill set is being a strong team member. This will take many different forms over a trader’s career, be it an organiser, leader, mentor, culture carrier, advocating for change or questioning the status quo, but will all be needed by a successful team over time.
What is coming over the horizon that you think will have the biggest impact on trading desks?
We are at a really interesting inflexion point for the industry as we are about to enter a new technological age with the proliferation of AI. This will have one of the biggest impacts on trading desks and markets over the next 5 years in my opinion. Greater efficiencies appear to be the initial benefit from this kind of technology, so you have to hope that this will make traders better and more focused with greater insights and opportunities to develop additional skills. But as mentioned before, the adoption will be at a varying pace and will no doubt look very different across trading desks. The use of data will continue to be a big driver for traders, and I believe we have only just scratched the surface on some of the analytics we use in terms of execution evaluation and routing technology. Continued academic studies on specific venues and market structure are essential to provide context for us to question and ensure the best outcomes for our clients.
It is an exciting time to be a trader, especially looking at current and future market developments. The hope is that this will help attract more talent to our industry, and help us continue to evolve, challenge, and improve.
Valérie Noël, global head of trading at Syz Group.
The global head of trading at Syz Group talks us through her journey in crypto since the firm’s launch of its digital assets solution 18 months ago – but warns that without more robust regulatory involvement, institutional involvement is likely to remain limited.
How have you built your infrastructure to service clients in this arena?
Our solution builds a bridge between traditional and decentralised finance. We streamline the trading experience by eliminating complexities associated with creating wallets and navigating various trading exchanges, offering clients direct exposure to digital assets through their bank.
We start with a curated selection of tokens and maintain an open architecture approach with integration capabilities for three counterparties. Trading remains accessible during opening hours, with clients enjoying limited order and stop-loss functionalities. All counterparties are integrated into our trading system, facilitating order generation directly from the bank’s core system.
We also provide secured custody services, enabling full custody, deposits, and withdrawals of digital assets exclusively through a secure wallet accessible solely by the Syz team. Our technical framework has been developed by experts in Switzerland leveraging Taurus-Protect, a leading solution in this field. Clients benefit from seamless crypto in/out capabilities, allowing for the transfer of cryptocurrencies to and from their private wallets without the need for fiat currency intermediaries.
What interest are you seeing from clients, and what volumes are you seeing now?
Since our launch 18 months ago, we have observed a significant surge in client interest, particularly notable since January following the approval of ETFs by the SEC. Our monthly trading volumes [in 2024] have notably exceeded the cumulative volumes achieved throughout the entirety of 2023.
What recent developments have been the most critical, and are there any missing gaps?
A significant obstacle arises within the middle/back office domain, where every broker employs unique settlement protocols. Furthermore, due to the prerequisite for pre-funding, counterparties must implement approaches akin to tradFI, entailing collateralisation or leveraging of deposited funds. Similarly, regarding tokens, specific entities mandate token transfers before executing trades, a practice difficult in tradFI.
You are one of the early movers in this space – why do you think so many other asset managers are holding back, and what more needs to be done to encourage institutional adoption of digital assets?
Many asset managers are still cautious to cryptocurrencies for several reasons. There’s a lack of regulatory clarity and uncertainty surrounding the legal framework governing cryptocurrencies and digital assets. Additionally, concerns about security, market volatility, and the potential for regulatory scrutiny contribute to their hesitancy.
Regulatory frameworks need to be clarified and standardised to provide clear guidelines for asset managers. This would help alleviate concerns about compliance and legal risks. Secondly, enhanced security measures and risk management protocols should be developed to mitigate the inherent risks associated with cryptocurrencies. Education and awareness programs can be implemented to familiarise with the benefits and potential of digital assets. Despite the progress made, several barriers still hinder forward movement. These include regulatory uncertainty, concerns about security and market volatility, lack of institutional-grade custodial solutions, and limited infrastructure for trading and settlement. Addressing these barriers will be crucial in unlocking the full potential of digital assets.
How do you see digital assets investment/trading interacting with incumbent asset classes such equities and FX? How can they support each other?
Digital asset investment and trading can interact with incumbent asset classes such as equities and FX in various ways, fostering mutual support and innovation. One compelling use case involves digital assets enhancing liquidity and efficiency in traditional markets. Consider a scenario where a company issues digital tokens representing ownership shares in its equity. These tokens can be traded on digital asset exchanges alongside traditional equities. Investors benefit from increased liquidity, as trading occurs 24/7 on global digital exchanges, complementing the limited trading hours of traditional stock markets. Furthermore, digital assets can facilitate cross-border transactions in FX markets. Cryptocurrencies, for instance, can serve as a universal medium of exchange, allowing for seamless and cost-effective currency conversions without the need for traditional intermediaries like banks.
In return, traditional asset classes like equities and FX can provide stability and diversification to digital asset portfolios. For instance, holding equities in established companies can mitigate the volatility associated with some digital assets, offering a balanced investment strategy.
Could the growth of this asset class help to address some of the challenges being faced by European capital markets today?
Digital assets and blockchain technology do have the potential to address certain challenges faced by European markets, but it’s important to note that regulatory clarity and supportive policies are crucial for their widespread adoption. European regulators need to strike a balance between fostering innovation and ensuring investor protection to fully realise the benefits of digital assets and blockchain technology in European markets.
What can we expect from the future, what are the developments to watch?
We are actively collaborating with our regulators to navigate this evolving landscape. Currently, our focus is on trading payment tokens. However, we are considering expanding our offerings to include utility and securities tokens in the near future. Additionally, we are closely monitoring developments in staking and are exploring opportunities in asset tokenisation. These initiatives reflect our commitment to adapt and innovate in response to emerging trends and regulatory frameworks.
With numerous high-profile regulatory penalties recently imposed on bulge bracket banks for market misconduct, Gill Wadsworth asks – how does the buy side respond to concerns over wrongdoing, and what are the consequences when counterparties break the rules?
