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It seems some of the hottest early-2020s trends in the institutional brokerage space have cooled.
SIFMA recently released its Annual Meeting Debrief, 2023, and there were some notable changes in what’s most prominent on brokers’ radar, versus just one year earlier.
The report starts at a high-level and works its way down into specific topics. The first question SIFMA asked hundreds of participants at its Nov. 6-7 meeting in Washington, D.C. was: What industry topics are top of mind for you?
The leading response, at a robust 76.7%, was “totality of the SEC agenda.” This was followed by “Cyber readiness” at 62.8%, “Transition to T+1 settlement” at 46.5%, and “Equity market structure reform” at 37.2%.
It’s notable that the top four topics are defensive in nature, i.e. they require brokers to allocate time, money and resources to comply with new regulations or to bolster cybersecurity.
The top-of-mind list looks quite different from the Annual Meeting Debrief, 2022, in which “Digital assets/cryptocurrencies” and “Equity market structure” were tied for 1st at 44.8%, followed by “ESG/Sustainable finance”, “Transition to T+1 settlement”, and “US Treasury market structure reform” in a three-way tie for 3rd at 41.4%. Next was “Cyber readiness” at 37.9% and “Decentralized finance (De-Fi)” at 34.5%.
So while regulation and cybersecurity were prominent in 2022, three of the top seven topics – digital/crypto, ESG/sustainable, and De-Fi – could be viewed as playing offense, in that they are opportunities for brokers to grow business and expand into new markets.
This year, digital/crypto fell from 1st to 5th, dropping 10 percentage points to 34.9% top of mind; ESG/ sustainable fell from T-3rd to 8th, dropping more than 20 percentage points to 20.9%; and DeFi fell from 7th to 12th, dropping 23 percentage points to 11.6%.
It seems there are two main takeaways from the top-of-mind changes: one, perhaps there’s less allure to new opportunities in digital assets, crypto, ESG, sustainable finance, and de-fi than there was a year ago; and two, exogenous forces (SEC, hackers) are forcing brokers to play defense.
Regardless of the shift in broker priorities, as well as ongoing economic uncertainty, there remains a backdrop for growth. The 2023 SIFMA report assessed the state of the industry as follows:
“As to how capital markets firms are weathering the challenging and ever-changing environment, one speaker noted the importance of diversification. He compared businesses to pistons on a car – corporate debt may go down while equity capital markets go up. That said, ‘stocks are going to trade, and bonds are going to trade’, regardless of the environment. Markets remain active, even as some capital markets businesses ‘peaked out’ in 2021.”
