Greenwich Names Top Market Trends for 2018
Technological change permeates all trading in the coming year.
So, what are the top market structure trends for this new year?
In a new report, market consultancy Greenwich Associates sets the stage for 2018 by noting last year was politically strange, economically strong and eerily calm. But now, according to the firm’s list of Top Market Structure Trends to Watch in 2018, technology dominates.
It’s the beginning of the digital age.
The industry will have plenty of news to digest out of Washington, DC, Britain and Brussels in 2018, as U.S. legislators and rule-makers move to roll back elements of the post-crisis regulatory regime and the EU implements MiFID II. In a new Greenwich Report released, Top Market Structure Trends to Watch in 2018 – The Year of Digital is Upon Us, Greenwich Associates sees regulatory change and the importance of data and analytics impacting trading venues, investors, dealers, and those that support them.
Cryptocurrencies Overshadow Blockchain Innovation
Volatility-starved banks wi
ll officially jump into the cryptocurrency pool in 2018. While money will continue to pour into distributed ledger technology (DLT) initiatives, the hype went a little far. Similarly, cryptocurrencies and their ability to transfer value and raise money are groundbreaking, but a correction in price is inevitable before we can understand their long-term place in the economy. “Nevertheless, cash is so 2016, and I wouldn’t be upset if my kids never really know what a wallet is,” said Kevin McPartland, Head Greenwich Associates Market Structure and Technology Research, and author of the new report.
Do you really need Coke? Or is Pepsi OK too? When portfolio managers decide they need to make an adjustment to the funds they manage, the trading desk is told exactly what security or contract to buy or sell. A combination of data, analytics and product choice is finally allowing investors to identify the best way to execute their investment ideas, and not just make the easiest or most obvious choice. “Knowing which investment provides the least basis risk, lowest cost, most liquidity, and highest leverage would ensure true best execution—and the robots have finally arrived to help,” McPartland said .
Alternative Data Goes Mainstream
Use of alternative data—social media, Internet of Things (IoT), satellite imagery, etc.—is more than just a hot topic. Ninety percent of investors using alternative data today tell Greenwich Associates they’ve seen a return on their investment. Alternative data is becoming more accessible, but it’s still a huge challenge to efficiently mine that data for useful signals. “There is money to be made in alternative data in 2018 not only by investors, but also by data providers, visualization and analytics-focused firms, and those helping to get the data to those who need it,” McPartland said.
Wealth Management Comes Out of Retirement
Happy clients lead to happy financial advisors, which lead to happy wealth managers. RIAs, broker-dealers and the big wirehouses are loving the current environment. Morgan Stanley is a prime example, as its overall profits continue to grow on the back of its wealth management business.
The move to fee-based accounts couldn’t have come at a better time, with this never-ending bull market generating wealth for investors that, in turn, generate fees for their managers. However, if the market decides to correct, as baby boomers pull out more money than millennials put in, this party might not last forever.
Tech Innovation Accelerates, Despite Security and Compliance Fears
Technology innovation in financial markets is severely limited by market participants’ security and compliance concerns. Unfortunately, those concerns could ratchet up exponentially if, as many fear, financial markets experience a high-profile hack next year.
Despite those fears, 2018 will be the year in which Wall Street finally makes progress in making it easier and safer for market participants to innovate and adopt new technologies—with continued growth in cloud deployments acting as the main driver.
Fragmented regulatory oversight will be a constant headwind.
New fund yields equal to other traditional high-risk index funds.
Cryptocurrencies can be regulated as commodities.
Better regulation can lead to more security and volume.
The new platform initially will eye institutional forwards trading.