What were the trends in market structure and electronic trading this past year, and where are they headed? This edition of Forecast 2021 introduces movers and shakers in the market structure and trading space who offer their outlook for what’s next for the industry, written by Sam Belden & staff at Forefront Communications.
The year 2020 has been unlike any other, and the capital markets and institutional fintech space were forced to adapt. In our Forecast 2021 series, we bring you reflections and predictions from prominent firms and thought leaders from the industry. Today, we’re highlighting perspectives from the world of market structure and electronic trading, with thought leaders providing their perspectives on the spikes in volumes and volatility, the key trends that define electronic trading and the most consequential market structure changes looming on the horizon. This is the second installment of the feature on Electronic Trading and Market Structure.
2020 saw major spikes in volumes and volatility. What was your experience during this period and what have been the long-term effects?
While our business has grown substantially in 2020, this result was not solely driven by the pandemic or the changes it brought in market conditions – rather, it was part of the ongoing larger growth story of outsourced and supplemental trading. That being said, the events of the past year did underscore our value to clients who used us in ways they previously had not. For example, many of our clients struggled to find liquidity during peak volatility. Our vast sell-side reach was put to the test and ultimately benefitted existing and new clients alike. In fact, these market conditions served to strengthen relationships between the buy and sell sides, especially for those who are highly connected, as there has been a significant uptick in high-touch trading. The pandemic has also highlighted the value of outsourced trading from a business continuity standpoint and made clear that remote trading can be a valuable resource when structured properly.
What are the most important trends in electronic trading to keep an eye on in 2021?
If this period of volatility persists, the conversation will focus on what is not trading electronically. With less liquidity, there has been more trading occurring off electronic venues and in a high-touch capacity. In this environment, there is no substitute for experience, expertise and deep sell-side relationships. Looking at electronic trading itself, heightened fragmentation has led to a growing realization that scale and reach are paramount. A growing number of buy-side firms are coming to understand these realities and the outsourced trading space has grown accordingly.
What’s the most consequential market structure change you’d like to see made in the coming years?
The closing auction in the U.S. is antiquated compared to other regions. It could be far more modern and electronic, allowing people to move their bids and offers much closer to the market close itself. This may require action from exchanges and regulators, both of whom can look to European markets as a model.
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