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Year-ahead outlooks are a dime a dozen. But looking back and assessing a previous outlook? That is a rarer bird.
Kevin McPartland, Head of Market Structure and Technology Research at Coalition Greenwich, was brave enough to speak with Traders Magazine about Top Market Structure Trends to Watch in 2022. Of the 10 trends highlighted in the January 2022 report, which ones happened as expected, and where did the crystal ball fog up?
The Tokenization of Everything – Less than expected
“Certainly some progress was made, as we saw people think about things like home equity lines and other real-world assets that can be tracked via the blockchain. But obviously the crypto winter followed by FTX, even though not directly related to tokenization, put a damper on the entire industry segment and probably slowed things down. But I think that’s only temporary and progress will continue once we get past that.”
Even More Market Transparency – As Expected
“There are a good number of proposals out there, for example on the ESG front. We had FINRA announce they were going to start reporting Treasury volumes daily instead of weekly. There are proposals about reporting corporate bond trades in one minute rather than 15, and a lot of talk about a consolidated audit trail in Europe, which was one of the big topics in fixed income conversations in Europe last year. Hopefully the rubber will meet the road a bit more in ’23 and ’24 as those proposals start to be implemented.”
Market Data Gets Interesting Again – Less than Expected
“I think in part with the bear market, people were focused elsewhere. The Pyth network component, which we still think is interesting, was hurt by the crypto winter. And the SEC continues to look at improving data access.”
More Blockbuster (and Perhaps Unconventional) Mergers and Acquisitions – Less than Expected
“At the end of the year we saw the Microsoft-LSEG partnership, which certainly fit the mold. We were starting to see a lot of this as FTX made investments in IEX and Robinhood, but obviously that has since collapsed. So for the first half of the year, this trend played out as expected, but in the second half of the year, it was less than expected. I wonder if what we had felt like was DeFi and TradFi coming together, will now be more of traditional technology firms coming into financial markets. CME-Google, Nasdaq-AWS, and Microsoft-LSEG are the big headline ones, and there will be more.”
The SEC – More than Expected
“They wrote rules on effectively everything. Let’s see, did they do everything? Cryptocurrency, stablecoins, payment for order flow, ESG, non-bank liquidity providers? Yep. Fixed income trading, venue oversight? Yep. Treasury clearing? Yep. Security-based swaps regulation, a little bit. Bond market reporting we talked about. So at least as much, probably more than expected. And this is one that will definitely continue.”
Best-of-Breed Comes into Its Own – As Expected
”There has been more buy and build, as opposed to buy versus build. That seems to be very common, and all of that requires tight integration.”
Startups on the Heels of Incumbents – Less than Expected
“I do think we made progress here, as there are some really great fintech startups in capital markets. But the tough market conditions certainly hurt, and as funding got more expensive, there was less VC money to go around and valuations came down, which was a headwind. But those firms are certainly still there and will continue to push the industry forward.”
An Upgraded Workforce – As Expected
“The ‘great resignation’ has ended, but clearly the labor market is still tight. So there are changes here. As we head into 2023, there is a lot of talk about layoffs at big banks and big tech, so this year is going to be very different, very interesting, and hard to predict.”
Retail Investors Get Institutional Investor Treatment – As Expected
“There was movement on direct indexing, ETFs, and electronic trading tools. Corporate and muni bond markets had record volume days in the fourth quarter, retail investors are coming into bond trading for the first time in years, mostly via ETFs. I think if anything, the tough market environment really drove forward the need for better retail investment management technology.”
Prime Brokerage Looks Forward – As Expected
“There was a lot of reshaping here, and big brands are still winning. We were starting to see some new models emerge on the DeFi side, but the flight to brand quality was pushed forward at the end of the year with FTX. So looking forward, the bigger names in the space are still in the lead and will potentially take share from startups.”
