Outlook 2018: Chris White, ViableMkts
Chris White is the founder and CEO of advisory firm ViableMkts.
What do you see as the next major watershed for the industry in 2018?
A watershed moment that I am anticipating is the shift from the artificial environment of low to no volatility, to a fixed income market that reflects normalized conditions that exhibit periodic bouts of volatility. Whether or not this occurs in 2018 is anyone’s guess, but an increase in volatility will test the existence of a meaningful liquidity problem in bond markets and the theory that electronic trading can be relied on in times of stress.
What regulatory changes do you expect to see in 2018?
The impact of MiFID II on fixed income markets will dominate the discussions on market structure for at least the first half of 2018. Given the size and scope of the regulation, I anticipate that innovation in Europe will stagnate for a period as market participants focus exclusively on compliance. Hopefully, US regulators will take a wait and see approach to applying any major rules to fixed income markets because MiFID II will provide an excellent case study to which to learn from.
Which hot topics/hype should be retired at the end of 2017?
I would expect the all-to-all trading hype in corporate bonds to die down quite a bit in 2018, but not retire completely. While the initial growth story around all-to-all has been compelling, stagnated trading growth combined with a saturation of new solutions will make this protocol much less of a phenomenon going forward. It will be very interesting to see the long-term impact that all-to-all trading will have on the traditional platform pricing model where dealers are charged high subscription fees for access to liquidity. At some point, the all-to-all model will completely degenerate the value of that “access” for dealers.
Will Wall Street return to focusing on innovation to drive alpha in 2018?
With regards to fixed income markets, I do not think there was ever a period where we could say that the industry was focused on innovation to drive alpha, so it is difficult for me to see a return to something that has never really happened. At this point, the jury is out on whether algorithmic bond trading in the corporate bond space can generate the significant alpha relative to traditional voice-based market making.
ETF investors continued to trim their equity exposure.
Nearly 80% of firms struggle to understand firm-wide limits and counterparty exposure.
MiFID II has increased interest in updating fixed income technology.
The proposal raises dissemination caps and adds large-trade delays.
SFTR is the equivalent of MiFID II for securities financing.