Over-regulation, decline in lit liquidity are top buy-side concerns for Europe

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September 18, 2024

So found the inaugural Global Trading Sentiment Survey 2024, which gauged the concerns of a wide spread of market participants during last quarter’s TradeTech in Paris. Laurie McAughtry reports.

With a 62% buy-side response (along with 23% sell-side and a handful of vendors and venues), the survey gathered a strong understanding of the current challenges and opportunities facing the European market in 2024-25.

Over-regulation was cited as the single biggest barrier to effective liquidity formation, with 34% of responses, while the decline on lit/on-exchange trading came a close second with 32%. One venue complained of: “Over-regulation, with too small tick sizes, volume caps, and too much ELP high frequency trading driving institutional flows to move to dark and many small execution sizes. Driving way too much liquidity away from the price forming lit books – which again are to secure reference prices for both best ex, etc.”

“Lack of a consolidated approach to regulation for the whole region,” was another worry raised by one buy-sider in the comments.

Other issues raised included access to market data (11%), and a lack of transparency (9%). Interestingly, despite the dramatic headlines around the IPO exodus, just 2% pointed to primary market tightening as a key concern – while the issue of research rebundling was ignored altogether.

Numerous buy-side respondents wrote in the comments that market fragmentation was a worry for them, while another noted the “rise of passive flows and less intraday volume”. Exchange fees and information leakage were noted as other buy-side concerns.

A sell-side voice raised the issue of “differences in trading costs at different venues”, and another commented on “excessive cost for venue connectivity”. One response complained: “Too many markets, too many order types, way too much choice.”

Almost half (48%) of respondents warned that the current liquidity squeeze was impacting their trading costs, while 23% said it was limiting their ability to invest. Nine percent said it was affecting their client relationships, while around 7% said it was creating a mismatch between cash and asset flows. “Small caps are suffering badly,” said one sell-side respondent. However, not everyone is being affected negatively. “It’s increasing business as I help my clients look for liquidity,” noted a buy-side consultant. “We are growing,” revealed another venue.

Tech investment is expected to be the biggest cost base of the coming year, cited by 38% – while automation is the next notable expense with 23%. Talent remains (as always) a top priority with 19% expecting it to be a key cost element – but interestingly, T+1 compliance came relatively low down the list with just 11% noting it as a cost concern.

Looking to the future, however, the market was firm in its belief that a consolidated tape would be a positive development: with 47% citing it as the single thing that could revolutionise liquidity in Europe. Retail involvement and less regulation also came high on the list, but dark pools were of less interest. A trade association suggested that “consolidation of post-trade” could help, while a sell-side respondent (perhaps unsurprisingly) urged for more “internal sell-side solutions”.

Key themes for this year included trading technology (cited by 68%), AI (55%), automation (48%), liquidity formation (41%), data (25%) and T+1 (25%).

Other areas of interest this year included “competitor intelligence,” “algo evaluation,” “algo efficiency,” “TCA usage,” “new liquidity product offerings,” and “trading venue innovation.”

And when it came to the reason people attended TradeTech, the final answer was of course: “a free lunch”.

©Markets Media Europe 2024 TOP OF PAGE

Barclays appoints Rob Patterson to boost tech investment banking franchise

By

Lucy Carter

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September 17, 2024

Rob Patterson, data and information platforms coverage, Technology Investment Banking, Barclays

Barclays is prioritising data within its technology investment banking franchise as it seeks to increase business with big tech clients, hiring Rob Patterson to lead data and information platforms coverage.

As technology firms become ever more attractive clientele, banks are developing their divisions to match. Barclays has already established itself in the space, leading the Arm IPO in September 2023 and taking financial advisory roles for software firm Epicor and payments company Nuvei Corporation.

Based in New York, Patterson is the latest in a string of hires for Barclays’s franchise, with San Francisco-based David King appointed global head of technology M&A earlier this month. He reports to Kristin Roth DeClark, global head of technology investment banking.

On the appointment, Roth DeClark said: “Rob has outstanding knowledge of the data and information space. His proven leadership capabilities, deep roster of key industry relationships, and extensive transactional experiences will enable him to deliver significant value for our clients. We look forward to succeeding together as a team, and further accelerating our strong momentum in technology banking.”

Patterson has more than 20 years of industry experience, 18 of which have been spent at Morgan Stanley. Most recently, he was a managing director and led the marketing, information and technology-enabled services investment banking division.

Prior to this, he was an investment banking analyst at UBS Investment Bank and spent two years as part of Parametric Capital Management’s hedge fund trading and operations team.

©Markets Media Europe 2024

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Julie Andress named 2025 STA board chair

By

Lucy Carter

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September 17, 2024

Julie Andress, managing director for institutional equity sales trading, KeyBanc Capital Markets

Julie Andress, managing director for institutional equity sales trading at KeyBanc Capital Markets, has been appointed 2025 board chair for the Securities Traders Association (STA), a US industry organisation. She is based in Cleveland, Ohio.

On her appointment, Andress said: “I’ve always been impressed by the number of ways that STA serves our industry, and I look forward to serving our members as well as advancing our mission to give back to our community.”

Andress, who has more than 15 years of industry experience, has been with KeyBanc Capital Markets since 2011. Prior to this, she was an analytics equity speciality, and later a senior account manager, at Bloomberg.

She has been a member of the STA board for the past six years, previously serving as vice chair and Women in Finance co-chair.

Jim Toes, STA president and CEO, noted that “Julie brings proven leadership skills, deep expertise, integrity and a passion for the organisation and we know she will advance our mission of advocating for our members and the larger industry during her term.”

STA was established in 1934 to educate members on market structure issues and represent their interests to legislators, regulators and other industry associations. More than 20 affiliate groups across the US and Canada form the association.

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2Xideas outsources trading to Northern Trust

By

Lucy Carter

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September 16, 2024

Under pressure from indexed funds to demonstrate their value to investors, active managers are opting for ‘trading-as-a-service’ (TaaS) from large providers, allowing them to focus on their core expertise. The latest to join the TaaS ranks is Swiss-based investment firm 2Xideas, which has US$2 bn assets under management.

2Xideas initially partnered with Northern Trust in 2022 for fund accounting, financial reporting, transfer agency, custody, and depositary services. Northern Trust’s outsourced trading services has more than doubled its clients over the past three years, the firm says, with more than 100 firms now using its integrated trading solutions (ITS) globally.

2Xideas’s four managed funds and additional managed accounts will now be exclusively serviced by Northern Trust’s outsourced trading provision.

Outsourcing is an increasingly attractive prospect to asset managers and owners, with the last few years seeing a major uptick in the number of firms keen to gain flexibility and agility, reduce risk and cost and keep up with rapidly developing technology and regulatory requirements.

Roger Meister, CEO of 2Xideas, explained that this was the reasoning behind the expansion of its partnership with Northern Trust. “We began searching for a solution that would streamline our trading processes, allowing us to focus on what matters most – delivering exceptional results for our clients. By leveraging ITS, we’re able to unlock access to Northern Trust’s substantial liquidity and scale, which allows us to drive growth while exceeding our clients’ expectations.”

Clients are now looking to outsource the entire trade lifecycle, the bank explained. ITS provides straight-through processing, integrating front, middle and back-office data flows, reducing reliance on manual intervention and increasing operational efficiency, it added.

“Northern Trust’s robust, conflict-free, agency operating model allows for cost-contained growth while improving business resiliency and control,” affirmed Amy Thorne, head of ITS for EMEA. “We look forward to supporting 2Xideas at both firm and fund level.”

©Markets Media Europe 2024

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TT International picks Finbourne for data aggregation and hosting

By

Alex Pugh

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September 13, 2024

FINBOURNE Tech_Thomas McHugh_872x600 — Thomas McHugh

Buyside firms are increasingly abandoning legacy data systems in favour of all-in-one cloud hosting platforms. In the latest example, TT International, an investment manager specialising in long-only and alternative strategies, has tapped Finbourne for its LUSID platform and EDM+ product to manage its data ecosystem.

TT International has discretionary assets under management (AUM) of more than US$5 billion and covers global equities, fixed income, and multi-asset strategies.

Finbourne’s SaaS solution provides one source of real-time aggregated investment data available across the firm.

Built on Amazon Web Services, using an open application programming interface, TT International will employ LUSID to aggregate and translate market, reference and investment data sets (including portfolio holdings and transactions), from multiple systems into one, real-time standardised form.

Finbourne claims the resulting data integration will enable better investment decisions for TT International. The firm’s competitors include the likes of Aladdin, Broadridge and FIS.

A Finbourne spokesperson told GT that the partnership will help TT International streamline its data management, which frees up resources for more effective investment decision making.

“Data within buy-side firms can often be hard to utilise, requiring investment managers to patch together disparate solutions with siloed data sets. By integrating Finbourne’s software, TT International can transform its data into a core operational asset at a manageable cost,” the spokesperson added.

Chris Stoate, head of risk, operations and technology at TT International, said: “Implementing Finbourne’s technology underscores our commitment to delivering exceptional client service, streamlined integration and access to real-time and quality data to support our goals.”

Thomas McHugh, CEO and co-founder of Finbourne said: “Asset managers are increasingly seeking technology that enhances efficiency, transparency and decision-making capabilities.”

©Markets Media Europe 2024

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Euronext chips away at Eurex equity derivatives market share

By

Alex Pugh

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September 12, 2024

When it comes to European derivatives exchanges, Eurex continues to dominate with a 71% market share in August compared to Euronext’s 29%.

But Euronext is slowly eating into Eurex’s market share. In July, Euronext hit 31% market share, with Eurex at 69%, its lowest over the year. The value of Euronext’s equity derivatives volumes in July stood at €38 billion, with Eurex recording €85 billion.

Eurex’s equity derivatives volumes peaked in December last year at €119 billion, with an 76% market share. Euronext’s best month over the past year was April, at €40 billion and a 28% market share.

In August, Eurex’s equity derivatives volume stood at €80 billion, 31% higher than the same period last year (€61bn). The value of Euronext’s equity derivatives volume stood at €33 billion in August 2024, up from €22 billion, a 50% increase.

Eurex’s Equity Index Derivatives encompasses EURO STOXX 50, STOXX Europe 600, MSCI Indices, DAX, SMI, and FTSE 100, while Euronext covers regional exchange products.

©Markets Media Europe 2024

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“As quiet as a summer could be”; traders reflect on an eventful season

By

Lucy Carter

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September 12, 2024

Eric Heleine, head of the buy-side trading desk, Groupama Asset Management

From widespread technology outages to unexpected acquisitions, from unprecedented volatility to political upheaval, it might feel as though this summer has been a standout in terms of unprecedented activity. However, traders representing firms with a total US$4.27 trillion in AUM had mixed takes on the events of recent months — with some even hoping for greater volatility as we move into September.

“In my experience, if the markets fail to deliver a ‘summer surprise’, then for sure something else will pop up which inevitably interrupts holiday plans,” says Marc Wyatt, head of global trading at T. Rowe Price (US$1.57 tn AUM).

There was certainly no shortage this year, although Eric Heleine, head of the buy-side trading desk at Groupama Asset Management (US$1.8 bn AUM), argues that “compared to previous years this summer was marked by a relatively low overall volatility”. Eric Boess, global head of trading at AllianzGI (US$555 bn AUM), agrees. “If one excludes 5 August, it was as quiet as a summer could be,” he opines. “Maybe that is no surprise after the massive equity rally in Q1 and neither FX nor longer term rates moving much. Irritating given the geopolitical backdrop, though.”

Equity flows over the summer were in line with those seen earlier in the year, according to the Investment Company Institute’s (ICI) estimated long-term mutual fund flows figures, but elevated on a year-on-year basis. The US$60.4 billion outflow observed in July only narrowly exceeded the US$60.2 billion recorded in April, while June’s US$39 billion was the second lowest outflow of the year to date. Compared to last summer, however, July’s outflows rose by 41% from US$43 billion.

“The presence of significant risk factors and technical adjustments created pockets of volatility and uncertainty, distinguishing this summer from others”, Heleine acknowledged. For Joe Collery, head of trading at Comgest (US$32.3 bn), “the top event for us was the lack of liquidity, with most developed markets being down more than 30% versus year-to-date averages”. Groupama Asset Management’s Heleine agrees that this has been an issue; “the most important challenge this summer was to maintain a high level of operability and performance with a short staffed organisation, spiking volatility and poor liquidity conditions”, he told Global Trading.

Marc Wyatt, head of global trading, T Rowe Price.

By contrast, at T Rowe Price Wyatt reports that “the most notable event of this summer was the US equity index rebalancing which took place at the end of the second quarter (and on a Friday nonetheless). The trading team was engaged with PMs in the lead up to rebalance and the notional traded on our US equity desk that day was multiple times what we see on a ‘normal’ day”.

Blue screens of death

Some of the events that have had the greatest impact on markets have broken through to the ‘real world’, making headlines outside the financial sector. The Crowdstrike outage of 19 July saw widespread chaos, grounding flights (which at least had the upside of helping companies meet their carbon reduction targets) and seeing photos of exchanges’ blue screens of death splashed all across social media. Some sources reported that trading was being put on hold at certain firms, while others suggested that reports of the chaos were inflated.

A few months on, and the latter group may have been correct. “[It’s] amazing how critical

Eric Boess, global head of trading at Allianz Global Investors.

a handful of providers are for our global IT infrastructure, but [this was] not a market event, at least not outside some specific stocks,” says Boess. Aside from its inclusion in the list of general summer activity, what appeared at first to be a devastating crisis has transformed into a cautionary tale of overreliance on a small pool of tech providers. Whether it is the first in a string of this type of lesson remains to be seen.

5 August

The second event to catch public attention was the 5 August stock crash and all that surrounded it. “[It was] one of the most violent moves in volatility and stock prices since Covid,” says Boess. A combination of factors sent US markets into a brief freefall, with wobbles in AI and tech stocks, anticipations of Bank of Japan interventions and concerns of a recession in the US prompting the unwinding of many JPY carry trades. “The unexpected reversal of the carry trade on the Japanese yen added to market uncertainties, affecting currency markets and investor strategies,” confirmed Heleine.

In July, LSEG’s Lipper Alpha reported that Europe saw “general inflows” in equities, but added that “equity markets looked somewhat vulnerable given the high valuations of the market leaders”. This fostered a nervousness among investors, it said, causing them to “[react] quite fast on any news that may impact the current market environment negatively”. This was apparent by 5 August, when the VIX closed at a post-Covid high and fears of a global financial crash were raised.

Eric Heleine, head of the buy-side trading desk, Amundi Asset Management — Eric Heleine, head of the buy-side trading desk, Groupama Asset Management

“The peak in volatility was primarily concentrated in equities,” explains Heleine, with Boess quipping that “fixed income barely noticed the house next door was on fire”. Subsequent trend-following and volatility control strategy adjustments caused “very negative price action,” Heleine continued, but added that this took place over just three days. “The market quickly reversed this positioning adjustment.”

“I am still surprised that we did not see more bodies floating,” muses Boess. “Usually such moves kill a hedge fund or two, but this event had surprisingly few casualties. The recovery was faster than I expected as well.” While things may seem to have calmed down for now, Heleine warns that “the combination of these elements suggests that while the broader market environment was calm, underlying tensions and potential catalysts for future volatility were present”.

Looking at the bigger picture, and while political upheaval can hardly be considered unprecedented anymore, this summer did see a number of drastic changes worldwide. While these shifts in power have all been impactful in the macro climate, traders suggest that political ups and downs have had little effect on markets. However, looking ahead, Heleine says, “if political and trade uncertainties persist, industrial companies might be inclined to delay certain investment decisions despite the support from final demand” later down the line.

Autumn outlook

“The outlook remains ‘constructive’ for growth towards the end of the year,” Heleine shares. “Stimulus plans continue to boost activity; financing conditions, both bank and non-bank, have further eased this summer; [and] final demand and the determinants of consumption are robust enough to encourage companies to continue their restocking and investment cycles.”

Looking to Q4, Boess says he’s hoping for “some more volatility. Not another 5 August, but some rotation, et cetera. Traders can’t show their skills if nothing is moving”.

If the first eight months of the year are anything to go by, with geopolitical tensions showing no sign of cooling, ongoing questions around the longevity of the AI bubble, and no lack of truly unprecedented events, a relaxed autumn doesn’t look to be on the cards. Whatever impact it has on the market, it’s unlikely to be boring.

©Markets Media Europe 2024

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Draghi calls for European SEC to fix capital market fragmentation

By

Lucy Carter

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September 11, 2024

Former European Central Bank president Mario Draghi has called for the European Securities and Markets Authority (ESMA) to “transition from a body that coordinates national regulators into the single common regulator for all EU securities markets, similar to the US Securities and Exchange Commission” to fully enact and support a “genuine capital markets union (CMU)”.

Currently, fragmentation is hindering efficient financial intermediation and limiting flows of savings into European capital markets, Draghi stated. In spite of attempts by the European Commission to establish the CMU and combat this, issues including the lack of a single securities market regulator and trading rulebook, inconsistent supervision, and a lack of alignment across EU member states remain significant blockades.

Amendments to ESMA’s role and governance structure in this context will be critical to achieving the objectives of the CMU, he said, arguing that governance and decision-making processes should be removed as much as possible from the interests of EU member states in a similar model to that of the ECB Governing Council.

“Turning national security market regulators into subsidiaries of a single, EU-wide one will face fierce resistance, not only by the national bureaucracies that will feel directly displaced, but also by trading platforms and market participants who draw sizeable rents from the status-quo fragmentation,” the report warned.

In order to prevent expected opposition, the supervision of purely local issuers should be left to national regulators and the initiative should begin with the supervision of issuers and market structures before moving onto mutual funds. Additionally, joint supervisory teams between ESMA and national supervisors should be established “to ensure a constant and timely information flow among them”.

A reduction of regulatory fragmentation, including the introduction of a harmonised cross-border insolvency framework, the removal of cross-border taxation obstacles and centralised clearing and settlement are all needed to improve the capital market landscape, the report stated.

Also necessary to improve European competitiveness is reestablishing the appeal of European stock markets for IPOs and for companies which have already gone public. To do so, again, regulatory complexity needs to be reduced, the report argues, and harmonised across the region. “This would, de facto, create a true pan-European multi-located stock market,” it continued, adding that “the task of simplifying and harmonising regulation should be assigned to ESMA”.

Allowing dual-class shares for IPOs will make European markets more appealing to founders, who can retain control of their firms, and will help to support earlier capital raises in companies’ early stages, the report continued.

Productivity gains

The preexisting global paradigm is fading, Draghi argues, citing the slowdown of rapid world trade growth, increased competition from abroad, lower access to overseas markets, an energy crisis and geopolitical instabilities as threats to European stability. “The foundations on which we are built are now being shaken,” he affirmed.

Despite a strong base, including a combination of high economic integration and human development and low inequality levels, growth in the EU has stagnated, Draghi said. Compared to the US, economic growth has slowed over the past two decades. At the same time, China has surpassed the region in GDP growth. This is primarily due to slow productivity growth, Draghi stated, associated with slower income growth and weaker domestic demand.

By 2040, the European workforce is expected to shrink by approximately two million workers per year. If average productivity growth rates since 2015 are maintained, the region would only be able to keep GDP constant until 2050, Draghi said; at a time when digitalisation, decarbonisation and defence capacity are increasingly vital focal points.

“If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions,” Draghi warned.

In order to fund start-ups and scale-ups, supporting innovation and high-tech projects, there needs to be a “significant increase” in available equity and debt funding, he stated. To do so, occupational and private pension systems in EU member states need to be strengthened.

Plans for pensions

“The EU must better channel household’s savings to productive investments. The easiest and most efficient way to do so is via long-term saving products (pensions),” the paper affirmed.

The European Fund and Asset Management Association (EFAMA) highlighted this focus in its response to the paper, with senior director Bernard Delbecque agreeing that underdevelopment of these regimes is limiting capital flow. Delbecque presented three areas of reform needed in this space.

Underdevelopment of these regimes is limiting capital flow, it said, with Delbecque presenting three areas of reform needed in this space.

“Firstly, individuals need to be better informed about the importance of long-term savings products to secure adequate income in retirement. Secondly, governments should provide sufficient tax incentives to encourage retirement savings, helping individuals overcome the natural tendency to prioritise short-term needs.”

He continued: “Member states should learn from best practices in other countries, like automatic enrolment for occupational pensions and life-cycling strategies to increase the proportion of pension savings invested in higher-yielding assets. Fourth, the Pan-European Personal Pension Product (PEPP) needs to be reviewed and simplified to address current challenges and make it a viable product.”

In its response, Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME), agreed that “the mobilisation of private and public finance at scale will be essential to securing the future of Europe’s growth and competitiveness on the global stage”.

Despite presenting a complex set of changes and recommendations, Draghi has an overall positive outlook on Europe’s ability to remain competitive and enhance its global position. “Our confidence that we will succeed in moving forward should be strong,” he stated. “Never in the past has the scale of our countries appeared so small and inadequate relative to the size of the challenges. And it is long since self-preservation has been such a common concern. The reasons for a unified response have never been so compelling – and in our unity we will find the strength to reform.”

©Markets Media Europe 2024

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Stocks around the clock

By

GlobalTrading

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September 11, 2024

New York may be famous as the city that never sleeps but in reality, equity traders working on the main stock exchanges get to down tools at 4pm eastern time when the sessions officially close. Gill Wadsworth reports.

The main exchanges also shut over the weekend, giving those working in what is often a stressful occupation, much needed recuperation time.

However, all that could be set to change as the New York Stock Exchange (NYSE) considers becoming the bourse that never sleeps.

NYSE is polling market participants on the merits – or otherwise – of trading stocks around the clock as regulators consider the possibility of sanctioning the first 24/7 exchange.

NYSE and NASDAQ are under pressure to keep up with several retail brokers, including Robinhood and Interactive Brokers, that offer 24/5 access to US stocks, providing their own internal liquidity or by matching with a venue that taps into Asian investment pools.

At the same time, the ability to trade cryptocurrencies 24/7 is leading investors to demand the same capability for their US equity allocations.

Dmitri Galinov, CEO at 24X National Exchange, which is seeking regulatory approval to trade round the clock, says demand for continuous trading is high.

“While 24/7 trading has delivered positive benefits to people seeking to trade cryptocurrencies, those same benefits would extend to people who wish to trade the equities of some of the largest global players based in the US. We have seen high interest in 24/7 trading,” he says

Galinov notes that 24/7 frontrunners Robinhood conduct one quarter of trades out of standard hours.

Rolling news

Harry Temkin, chief digital officer at fintech DriveWealth, which offers the technology to support fractional trading allowing retail investors to purchase portions of shares for as little as one pence, says 24/7 trading is valuable to investors who do not want to be penalised for living in outside the US’ time zone.

“Why is there that limitation [to equity trading hours]? Our total volume trading in the overnight session is steadily increasing which is mainly because our Asian clients want to be trading in real time. If something has impacted Apple’s stock price, they don’t want to wait until the next day to trade.”

As investors have access to company news 24/7, it is no surprise that an increasing number of individuals want to act on that information as soon as they hear or read it.

Paul Woolman, managing director and global head of equity products at CME Group, says: “The news cycle that we live in today is much more immediate, and it’s more 24/7 in nature. News can break anytime and people want to be able to react to that and manage risk in a real time manner.”

24/7 trading would, Galinov says, have the potential to alleviate some of the volatility that arises when investors react to reading company news overnight and rush to the markets as soon as they open.

“Morning trading in US equities may become less volatile by enabling investors to react to big news – for example, an Elon Musk after-hours tweet about Tesla – as soon as it happens rather than waiting for the US markets to open,” he says.

End of day dash

There are further arguments for implementing round the clock trading as a means of reducing volatility and improving liquidity.

Research from trading analysis firm BestEx Research finds that a third of all S&P 500 stock trades are executed in the final 10 minutes of the day; an increase from 27% in 2021.

This trend to favouring the closing auction is in part driven by the rise in passive investing and ETFs that are attracted to the price efficiency and liquidity that the close offers.

However, the end of day dash for liquidity is seen by some as detrimental and destabilising.

A report from the National Bureau of Economic Research published in December 2023 states: “The mostly liquidity-driven trading interest of participants in the closing auction might lead to distortions of the closing price and deviations from the fundamental value due to short-term supply and demand imbalances caused by, for example, one-sided order flow from index tracking funds.”

However, while opening markets 24/7 might reduce the issues of over-reliance on the closing auction, it does not mean there would be ample liquidity at all hours.

Woolman says: “If you have a very thin market overnight, it might become less appealing to end users because they’re not sure whether they’re paying a wider or bigger offer, or whether the price on the screen is truly reflective. Our clients want value liquidity not just during the main market hours, but also in the extended trade.”

Market disruption

The technological demands of moving to 24/7 trading are immense and for established firms, it may mean overhauling existing systems, particularly those that rely on downtimes to carry out maintenance.

Michael Hall, head of distribution Spectrum Markets, says “In an older company with legacy infrastructure, you end up bolting things on to something else, and it becomes hard to then adapt one system without impacting another. Different technology will be required for your pricing, risk management; compliance and risk tolerances will be impacted.”

He adds: “Spectrum built brand new technology from scratch with continuous trading in mind, so we are able to scale, and the maintenance is minimal.”

Meanwhile Galinov says that 24X National Exchange will implement “brief trading pauses” to allow for software upgrades and functionality testing.

Trader burn out

Alongside technology, firms will need to find staff who are both willing and capable of trading stocks 24/7.

Further at a time when mental health and wellbeing in the workplace is increasingly important to both employees and employers, there is a risk of a backlash when imposing longer working hours.

The Investment Association (IA) says that the “current long hours culture impacts on traders’ mental health and wellbeing. It has also been identified as a key obstacle in recruiting and retaining more diverse talent.”

Stuart Lawrence, head of UK equity trading, UBS Asset Management, says: “At present, the chances of moving to 24/7 equity markets remain small as there seems to be little demand or necessity for such an extreme change. EMEA already has the longest trading sessions and there have been previous attempts to shorten these hours. When considering extensions, there must be conversations around – and recognition of – the mental and physical health of traders.”

Lawrence adds: “Any changes to our trading days would likely require changes to the coverage model, and they will have to staff their desks accordingly. This will increase costs at a time when costs are in focus. Firms would need to ensure they have the right coverage in place and finding suitable traders willing to work unsociable hours would take time.”

However Temkin says most demand is for 24/5 trading which means less necessity on the buyside to find people willing to work weekends.

Temkin says: “It is just like the futures markets which stop trading on Friday and reengage on Sunday night. Equity trading might go to 24/7 but ultimately weekends are still seen as precious.”

Europe under pressure

European market participants were vociferous in their opposition to longer trading hours back at the turn of the century, with the Investment Association arguing that “it is high time we end the long hours culture, which is detrimental to diversity and mental health, and inefficient for the markets”.

As part of their response to an LSEG consultation on reducing trading hours, IA and the Association for Financial Markets in Europe also argued that a shorter trading day “will improve liquidity in Europe as, rather than being thinly spread over an extended period of time, trades will be more evenly distributed over a shorter trading day”.

However if the US opts to open all hours, the European exchanges will be under significant pressure to follow suit.

Spectrum Markets’ Hall says: “If the APAC regions and Hong Kong exchanges are open at the same time as America’s, that means improved pricing. And if Europe’ doesn’t open its doors too, they will be at a disadvantage and investment will go elsewhere.”

But UBS’s Lawrence believes European exchanges will be able to retain control of their opening hours, even if the US goes 24/7.

“US and European markets have different rules and approaches,” he says. “In the event of a US move to 24/7 there may be some pressure for Europe to follow suit, but I would expect it to have little effect in changing the regional dynamics.”

Moving to continuous equity trading will be a monumental shift for a market that has long been beholden to the trading bell.

For some that shift would be welcome, bringing a freedom that is enjoyed in other sectors and would democratise equity investment. Further the technology already exists and there are plenty of fintechs chomping at the bit to disrupt the status quo.

But 24/7 trading remains controversial and there will be plenty of obstacles to overcome before access to round the clock stocks becomes a mainstream reality.

Increased TCA sophistication highlights data quality troubles, Acuiti says

By

Lucy Carter

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September 10, 2024

Poor data quality poses a critical or significant challenge to transaction cost analysis (TCA) processes for more than three quarters (77%) of derivatives-focused executives at asset management firms, according to a recent report from Acuiti; but equities are broadly untouched by the issue.

This will not come as a surprise to many. “TCA is most mature and widely used in equities, where data availability and standardisation are the most advanced,” the study, The Growing Sophistication of Transaction Cost Analysis’, affirmed. Participant responses confirmed this, stating that equities are the easiest asset class to evaluate TCA in; the most difficult, they said, are OTC fixed income derivatives, spot fixed income and equity derivatives.

Changing regulatory requirements around best execution, technological developments and a widening range of use cases have prompted many asset managers to use the tool in asset classes beyond equities, Acuiti found – most commonly fixed income and equity derivatives, although participants also apply the strategy to commodities and listed and OTC fixed income derivatives.

The issue of poor data quality is most acute among those measuring TCA in OTC derivatives, the report noted, while those who only deployed TCA for equities were far more likely to rate it as providing no, or a slight, challenge.

“Fixed income analysis is more complex due to the diversity of instruments and the absence of a centralised marketplace,” the report explained. “In addition, measuring TCA in less liquid markets can be challenging.”

OTC markets pose difficulties due to their opacity, it continued, with less inputs to measure performance against. Additionally, the customisable nature of swaps contracts and the popularity of privately negotiated deals with limited competition make it difficult to compare execution quality and pricing.

Fragmented data analysis contributed to the problem of poor data quality, Acuiti said, observing that just half of the firms participating in the study used a single, golden source of data for processes including TCA and risk and portfolio modelling.

“As firms look to integrate TCA processes in other areas of the business, fragmented data across the organisation will set back drives for efficiency,” the company warned.

In addition to poor data quality, the study found that more than 70% of participants found sourcing accurate data to be a critical or significant challenge when conducting TCA. Measuring liquidity was the second most challenging issue cited, while allocating fixed internal costs was the most popular choice marked as ‘no challenge’ or ‘slight challenge’.

Bringing together different data sets was a significantly less challenging process than sourcing the data itself, with no participants labelling this as a significant challenge and the majority calling it a slight challenge. More than 20% stated that it was no challenge at all when conducting TCA.

Looking ahead, Acuiti predicted that firms will lean into outsourcing TCA processes. “As the sophistication of TCA increases, so too does the cost of development,” it said. “Firms that are deploying TCA pre-trade and looking for real-time TCA will ultimately be better served mutualising the costs of developing that software with a third-party vendor.”

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