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How did 2023 play out on the market structure front?
Just about one year ago, Kevin McPartland, Head of Market Structure and Technology Research at Coalition Greenwich, was brave enough to speak with Traders Magazine to assess his firm’s 2022 trends to watch.
We enjoyed the catch-up so much we thought we’d do an encore performance — what follows is the second-annual ‘look back at a look ahead’, reviewing CG’s Top Market Structure Trends to Watch in 2023.
Here goes:
- The Search for the Next Tail Risk – As Expected
Kevin: “We did get a couple of those. SVB and the regional bank crisis is pretty high on the list, but thankfully that didn’t turn out to be as bad as feared. Unfortunately, there’s geopolitical conflict with another big war that I don’t think anyone saw coming.”
- Crypto’s Dot Com Moment and the Flight to Quality – As Expected
“My colleague David Easthope put out a blog a while back talking about all of the work that’s going on behind the scenes, such as a proof of concept for tokenizing real-world assets. Then while I’m not much of a Bitcoin tracker, the price has gone way up over the past few months, and maybe Sam Bankman-Fried going to jail will allow the industry to move on from the FTX fiasco.”
- Capital as the Most Important Commodity – As Expected
“About as expected, although there’s more to play out here. The Basel III Endgame is going to be a really big deal next year. Regulators want banks to be safer and hold more capital, but then they also want them to provide more liquidity to the market. Those two things don’t always go hand-in-hand.”
- The Quantification of ESG – As Expected
“This one depends on how you look at it. There has been a push for more and better ESG data, although interest in ESG as a whole has waned as many of those strategies have underperformed. So maybe it’s because people have been able to quantify that they’ve backed off. We weren’t predicting the success of the market, rather just that people would aim to understand it better, and has played out.”
- Electronic Bond Trading’s “What’s Next” – As Expected
“We just published a piece earlier this week with data that shows E-trading in investment grade corporate bonds was 45%, which was finally a jump. So we’re getting there – I don’t think block trading has electronified as much as some would have hoped, although that seems to be coming. But recent numbers would suggest that we’re breaking through our glass ceiling of 40%.”
- Progress in Equity Market Structure Reform – Less than Expected
“We haven’t seen much here. We got the clearing proposal for Treasuries, but there hasn’t been a lot of progress in equities, aside from a couple of lawsuits and a lot of conversation.”
- Making Traditional Assets Crypto-Native – As Expected
“We didn’t expect huge progress,but we’re seeing more use cases. So there has been some real progress, particularly on issuing bonds via distributed ledgers.”
- Alt Data for Investing: Not so Alternative Anymore – As Expected
“It’s getting harder and harder to find true alternative data, because there’s so much access and availability to what was considered alternative data just a couple of years ago. So it feels pretty mainstream at this point – maybe the evidence of that is we don’t talk about alternative data that much anymore because it’s become so available.”
- Electronic Communication is the Only Communication – Less than Expected
“This is a hard one to quantify, but the phone is still prevalent, so I guess it’s less than expected. It’s interesting that we continue to write about relationships as much as we write about automation.”
- Outsourcing More Than Just Trading – As Expected
“We published a big research piece around mid-year on asset managers outsourcing in general – not just trading, but middle and back office and other functions.”
And…
Bonus question: What was the biggest market structure trend of 2023 that you didn’t highlight in your top 10 list from one year ago?
“Retail investor demand for individual bonds. We wrote about that in January, and the train kept accelerating all year. Retail volume is still trending well above long-term averages, which brought a lot of investment to make bond market access easier for retail investors. There’s more to come next year.”
