With 2020 dawning in a matter of months, the start of a new decade provides an opportune time to reflect on the evolution of the equity-trading market: What will it take for buy-side institutions to thrive in this fast-changing world? How quickly can you adapt to seize upon opportunities created by new economic, regulatory, technological, and political realities?
Change happens quickly and creates uncertainty; knowledge sharing is therefore vital. We have already seen electronic liquidity provider systematic internalizers (ELP SIs) become a more important part of market structure, particularly now that MiFID II has had time to bed-in. Ever open to innovation, the industry has adapted to these new participants, with brokers likely to play a key role in the growth of ELP SIs as they too get used to their place in the market.
The effective utilization and interpretation of data remain paramount to developing new revenue streams across financial services. So, while there is lingering confusion around how ELP SIs operate and differentiate from each other, the growing amount of data emerging from these venues is slowly creating greater transparency and dialogue as to their mechanics. This will inform future usage, but market uncertainty remains, as confirmed by audience polls at TradeTech 2019: some 56% of audience members said they are unsure of how ELP SIs differ from each other, while 51% said the biggest challenge they faced was understanding whom they were interacting with. Perhaps most tellingly, as much as 82% of the audience said they did not have sufficient information on the mechanics of how ELP SIs work. In light of this, continued discussion of these and other changing industry dynamics clearly remains a priority.
Exemplary firms are navigating these market changes with a focus on human capital; BlackRock’s dynamic team structure and trading strategy are particularly highly regarded as they encourage constant innovation and adaptability. With a strong emphasis on developing trading personnel that are not just flexible but also technology-focused, BlackRock has been able to adapt quickly to evolving market conditions, spurring growth globally. In so doing, the firm has built a culture that ensures trading-desk staff are fully equipped with a diverse set of skills that can be deployed across its execution channels and technology resources.
A proactive approach to new technology, such as that at BlackRock, can help improve workflow processes throughout the trading-order lifecycle. Going forward, technological solutions must be deployed to address regional liquidity pools created by regulatory changes. These require new approaches to trading workflows, and the increasingly important fields of intelligent data processing and automation will play a key role.
What has been crucial to moving all of this forward is a consistent dialogue with other market participants. This collaboration has been imperative across the financial-services industry as traditional processes have faced disruptive forces. Knowledge sharing and innovation keep the market at its prime while maximizing understanding and profitability, and navigating potential pitfalls and facing down external challenges together. This experience - challenging, mutually enriching, and ultimately transformative - is what makes TradeTech 2020 a vital forum for all industry participants.