January 5, 2021 | Stamford, CT — After a year of wild market volatility and a wave of new technology solutions accelerated by the sudden switch to work-from-home and other pandemic-related disruptions, experts in financial market structure are asking: What comes next?
“Market structure innovation kept up in 2020 despite the obvious headwinds, yes 2021 is poised to bring even more positive structural changes to the global capital markets,” says Kevin McPartland, Head of Research in Greenwich Associates Market Structure and Technology group.
In a report released today, Greenwich Associates examines some of the biggest market structure changes we can expect in the coming year. The Top Market Structure Trends for 2021 include:
- Post-COVID/Post-Election Regulatory Reform: Major market shocks often trigger regulatory reform. So do transitions in the White House and of course, there is Brexit. However, although the market shock of last spring attracted scrutiny from market regulators, technology and market structure actually performed well in 2020, and the quick market recovery could make large-scale reform hard to justify.
- Identity Crisis for Exchanges: While the term “exchange” maintains its specific regulatory designation, the world of exchange groups is going through a wholesale change. NASDAQ now identifies as a fintech firm. ICE generated a third of its revenue from data in 2019 and LSE is poised to buy Refinitiv for $27 billion. Further, fixed-income trading venues once referred to as “ECNs,” now have market capitalizations that rival some of the oldest and largest exchange groups. Expect this transformation to accelerate in 2021.
- Equity Trading’s Appetite for Change: The launch of three new exchanges in 2020 coupled with the explosion in retail trading have set the stage for competition in 2021. Investors have demonstrated an appetite for both new exchanges and new trade types, which should drive only more innovation in the coming months. Couple that with an active SEC and 2021 should bring with it a positive move forward for equity market structure.
- Tech Trends: Communication, Compliance and the Cloud: The financial industry gets major kudos for making the incredibly complex switch to work-from-home relatively seamless last year. Shoring up the infrastructure that facilitated this sudden transformation will be a major focus in the new year as compliance departments get more comfortable, electronic collaboration tools grow in value and third-party providers roll out innovative new features and functions. Finally, as financial service firms of all types seek to access the computing power they need for high-powered data analytics while also lowering their cost base, the move to the cloud will accelerate in 2021.
The top trends covered in the report also include the fight to be the Libor alternative, increased credit market electronification, enhanced competition among options exchanges, the growth of CLOB and non-bank market makers in FX, and further consolidation in wealth management.