As the New Year is now officially underway, one consultancy has earmarked several hot button topics as the focus of market structure pundits in 2015.
Greenwich Associates noted that the continued phase-in of Basel III for U.S. banks, a raging debate about radical new equity brokerage rules in Europe, new bond trading platforms, and the search for a real fix to the FX fixing scandals are among the trends that will impact the structure of global financial markets in 2015 and beyond.
In a new report, “15 for ’15: Top Trends to Watch in 2015,” Greenwich identified shifts in regulations, market practice and technology with the potential to change the way investors and the financial firms that service them do business.
Kevin McPartland, head of market structure research at Greenwich Associates said Basel III regulations will be a main theme now that Dodd Frank is a somewhat distant memory. He noted U.S. banks will finally get a real taste of Basel III with the required disclosure of Supplementary Leverage Ratios (SLR) – the U.S. interpretation of leverage ratio requirements defined by Basel III.
“This new disclosure requirement will finally give the market a more apples to apples comparison of bank leverage,” McPartland wrote. “As the last few years have taught us, disclosure brings with it questions, and questions often lead to change.”
European broker-dealers will also see major changes in its market structure – particularly in unbundling. Greenwich noted that the unbundling debate in Europe makes regulatory scrutiny of the equity markets in the U.S. look like “child’s play.” McPartland said ESMA and the FCA have proposed rules that would require asset managers across Europe to use their own money rather than individual portfolios to pay for research and advisory services – including corporate access.
In the foreign exchange markets, more regulation is coming. As McPartland said, the real question to emerge from the 2014 FX fixing scandal is “why, in a market with over 80 percent of volume executed electronically, is a model developed decades ago still used to set the “official” price.” To him, it is not clear if the regulators will move fast enough or hard enough on the industry to drive real change to this process in 2015. Furthermore, the spotlight on FX derivative markets will also brighten as U.S regulators determine how Dodd-Frank swaps rules apply.
And not to be left out, Greenwich also took a look at the bond market and the growth that the market has undergone. The consultancy said the section will continue to evolve naturally, rather than see dramatic wholesale changes.
“Growth in corporate bond e-trading and further adoption of trading protocols that go beyond traditional RFQ will come in 2015 but a big bang market structure change is not expected,” McPartland said. “Unless a major market malfunction occurs, we don’t expect any major regulatory moves related to bond trading either. While the dynamics are different, client execution habits for trading U.S. Treasuries are expected to be increasingly self-driven.”
