While inflation, supply chain issues, regulations, the pandemic, and rising rates will be big drivers of global markets for the foreseeable future, a radical increase in market transparency, changes in the price and competitive landscape for market data, standardisation in APIs and other technology will be among the key forces continuing to reshape the financial services industry, according a new report from Coalition Greenwich – Top Market Structure Trends for 2022.
The financial services industry got back to business in 2021, but the year was far from “normal,” says Kevin McPartland, head of Research in Coalition Greenwich Market Structure and Technology group.
He adds, despite these unusual circumstances, “bold bets on bold innovations permeated almost every conversation in 2021, and there is nothing that leads us to believe 2022 will be any different.”
Each trend will have its own impact. For example, although there was a spate of regulation in the wake of the global financial crisis, the report notes that regulators in the US and Europe are pushing for the next round of increased market transparency through new regulatory proposals and the threat of additional legislation, which is encouraging the industry to act first.
The report cited examples of enhanced environmental, social and governance (ESG) reporting standards as well as the push for a consolidated tape in the European Union.
As for market data, the report highlights the changing market structure with US Investors Exchange (IEX) set to change for their market data for the first time. This is a turnaround as it notes that IEX has been a harsh critic of the pricing and methodology of the incumbent exchanges.
In addition, the report predicts that unique decentralised finance (DeFi) challengers to the primacy of the traditional market-data providers will gain traction. It points to Pyth as one to watch. It is a network that collects and publishes continuous real-time market data across assets “on chain” in a sub-second timescale.
The report also expects process automation to be high on nearly everyone’s priority list for 2022. It said, since no one works with a single technology provider anymore, more automation requires disparate systems communicating with one another without months of development. Admittedly, this trend is more in the technology weeds than the others on this list, but this type of technology plumbing is what will allow many of the others to come to fruition.”
It recommends that the technology could benefit from having a protocol similar to FIX which was created in 1992 to enable institutional traders and broker-dealers to communicate with each other regardless of the trading system each firm used.
The report said “We need more of that. Tech providers today increasingly focus on providing everything “as a service,” which is a great step toward easy integration and a best-of-breed approach.
But until those APIs take a standard approach, programmers and custom development are still needed almost every time. A lot of work has been done by the industry over the past few years to create this standard. In 2022, we hope and expect broader adoption of these new interoperability mechanisms to increasingly take hold.”
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