There will continue to be an increase in off-exchange equity trading volumes in the US, after record volume last year, according to Greenwich Associates’ Top 2021 Market Structure Trends report.

Trade Reporting Facilities (TRFs) run by Nasdaq and NYSE capture trading off-exchange such as in alternative trading systems, internalizers, internal matching by central risk books and single-dealer platforms.

Top Market Structure Trends for 2021 https://t.co/MZL6F0sJL3 via @GreenwichAssoc pic.twitter.com/oq5g1o2mBE

— Greenwich Associates (@GreenwichAssoc) January 5, 2021

The consultancy said in a report that the growth in TRF volume follows the large rise in retail trading (and resulting increased internalization of retail order flow) last year, but also highlights other trading systems and functionality offered by brokers and alternative trading systems.

“The evolution of functionality away from strict price/time priority (and its attendant drive toward diminishing returns on latency gains) has allowed for these non-exchange systems to flourish,” added Greenwich. “Block trading systems, guaranteed market-on-close (GMOC) offerings, conditional orders, and alternative AI matching systems all continue to rise in importance, as the industry increasingly looks to find liquidity where it has the least market impact.”

Greenwich highlighted Cboe Global Market’s acquisition of BIDS Trading, a registered broker-dealer and the operator of the BIDS Alternative Trading System (ATS), as an example of how exchanges are likely to seek market share through acquiring dark block trading venues.

Cboe said yesterday in a statement that it had completed its acquisition of BIDS Trading. The two have had a partnership in Europe since 2016 with the creation of Cboe LIS for European equities block trading.

The exchange said that through ownership of BIDS Trading, Cboe gains a competitive foothold in the off-exchange segment of the U.S. equities market, which now accounts for more than 40% of overall U.S. equities trading volume.

Ed Tilly reflects on opportunities that we see in the acquisition of the largest independent block trading ATS in the U.S. For details, see the press release at https://t.co/Ko31pGZIV8. #DefiningMarkets pic.twitter.com/D8TLOXkpJS

— Cboe (@CBOE) January 4, 2021

Ed Tilly, president and chief executive of Cboe, said: “Through our successful collaboration on Cboe LIS, Cboe and BIDS Trading have established a proven track record in delivering best-in-class block trading capabilities for European equities.”

Tokenized assets

Another trend that Greenwich identified was increased institutional acceptance of digital assets.

“As such, security tokens should have a breakout year in 2021, with firms seeking to solve for the top two challenges: regulatory certainty and secondary market liquidity,” added Greenwich.

The consultancy continued there will be continued creation and adoption of platforms for trading, custody and derivatives, including brand new ATSs.

“If these stars all continue to align, 2021 is shaping up to be the year in which traditional securities and blockchains actually start to converge,” said the report.

David Easthope, senior analyst who heads up fintech research on the market structure and technology team at Greenwich, said in a blog last month that the biggest challenge to security tokens was a lack of regulatory clarity.

However, Arca Labs has filed with the US Securities and Exchange Commission to launch ArCoin, a registered mutual fund and sell shares in a public offering.

“It is the first blockchain native investment fund registered under the Investment Company Act of 1940—a notable feat,” said Easthope.

In addition INX, a digital asset exchange, could become the first SEC-registered token initial public offering.

“While it’s not the traditional S-1 filing (this is an F-1 or a foreign IPO offering), it would be the first digital security token in the U.S. to have reached effectiveness from the SEC,” added Easthope.