2017 has been an interesting year for the FlexAdvantage blog’s coverage of industry news. Government regulations, such as MiFID II and the fixed income trading protocols, were obvious highlights, as were issues concerning data usage, the advent of augmented reality in trading, fragmentation in the options markets, and trends in currency markets.
Following is our countdown of the Top 10 FlexAdvantage Blog posts for 2017. Enjoy!
With only four months to go until the MiFID II’s Jan. 3, 2018 implementation date, buy-side firms are facing huge changes in disclosure and transparency requirements, which could upend their data management architectures.
Participants on a webinar MiFID II: Data for Transparency organized by A-Team Group, said that firms are wrestling with the changes from MiFID I to MiFID II.
As hedge funds and quantitative asset managers hunt for unique sources of alpha, Wall Street’s attention is turning to analysis of location data generated by mobile phones. Location data from mobile phones is now at the forefront of the push to combine data science techniques with machine learning techniques to produce actionable information on company fundamentals.
Third-party aggregators are seeking to quench the thirst of hedge funds for non-traditional datasets.
Some experts are debating whether the complexity of the listed U.S. options market structure is hurting liquidity providers and driving some market makers out of the business.
Options market makers are navigating a fragmented liquidity landscape, rising technology costs, and an arms race around high speed trading. Some electronic market makers, like pioneer Interactive Broker’s Timber Hill unit, have dropped out, citing diminished opportunities for profitability.
As consumer technologies rapidly evolve, some are speculating that augmented reality could be the next big thing to transform the trader’s work space. Financial services firms are already looking at bringing augmented reality into the trading room to help traders to interact with complex data sets and to collaborate with clients remotely.
While virtual reality immerses the person in a virtual world, augmented reality allows digital concepts to interact with a person’s real physical world. Ever since the game Pokémon Go became a global sensation in July 2016 on the smartphone, there has been more interest in the commercial potential of AR, not only in gaming, but also in ecommerce and in mobile commerce.
A wave of consolidation has hit high-speed trading firms and brokers in the past few months, and many are blaming low volatility and weak trading volumes in the face of rising compliance and market data costs.
Starting with electronic market-maker Virtu’s acquisition of rival KCG in April, Two Sigma Securities buying options market-marker Timber Hill in May, and Cowen gobbling up Convergex a few weeks ago, trading firms are reassessing their business models, including the need for speed.
In mid-July, SEC Chairman Jay Clayton said he asked the staff to develop a plan for creating a Fixed Income Market Structure Committee to advise the SEC on regulatory issues in the fixed-income markets.
Clayton said the fixed income committee would be modeled after the Equity Market Structure Committee (EMSAC), and would be comprised of a diverse group of outside experts.
“The time is right for the SEC to broaden its review of market structure to include specifically the efficiency, transparency, and effectiveness of our fixed income markets,” stated Clayton in prepared remarks made to the Economic Club of New York.
Political shocks such as Brexit and the U.S. election of Donald Trump jolted the foreign exchange markets in 2016, fueling more trading activity for hedge funds and bank trading rooms. Uncertainty around a stronger U.S. dollar and higher interest rates could drive more volatility into 2017.
Looking out to 2020, FX market pundits are pinning their hopes on lighter regulations, the evolving landscape of liquidity providers, a more active buy-side, the transforming potential of blockchain, and the future role of humans in the process.
Alternative data providers see huge potential in providing their data to discretionary asset managers who are losing assets to quantitative and systematic funds.
As active managers trail the performance of passive index funds and exchange-traded funds (ETFs), discretionary fund managers are scrambling to consume big data analytics into their decision making process.
While early movers in the big data analytics industry have mainly been quant hedge funds and systematic fund managers, the next wave is going to be discretionary fund managers, according to panelists at an event sponsored by Wall Street Horizon, Estimize, OTAS Technologies and FlexTrade Systems.
Corporate bond trading platforms are in the news again.
Platforms that have launched innovative all-to-all trading protocols are attracting buy-side firms to their venues. Despite skepticism a few years ago that all-to-all platforms wouldn’t attract liquidity, platforms like MarketAxess with Open Trading and Liquidnet’s have gained traction on the buy side and increased their volumes over the past year.
North American broker-dealers and asset managers domiciled in the U.S. are watching their European counterparts gear up for compliance with MiFID II.
But will MiFID II affect U.S. broker-dealers and asset managers based in the U.S.?
Could the massive regulation that requires asset managers to unbundle research payments from executions, and quantify the value of research for its clients, find its way onto U.S. shores?