REGULATIONS TOPS THE LIST OF CONCERNS IN 2015.
Not surprisingly, the plethora of new rules that continue to sweep over the global financial community will remain high on the agenda, according to a new report by Greenwich Associates. The new equity brokerage rules in Europe combined with Basel III and solutions to the FX scandals are among the trends that will have a long lasting effect on market infrastructure this year and into the future. In addition, new bond trading platforms, an expected move by the US Federal Reserve to increase interest rates and a subsequent pick-up in volatility will also make their mark.
The report entitled 15 for 15: Top Trends in 2015 notes that although full global implementation of the rules will not be completed for several more years, US banks will finally get a real taste of Basel III with the required disclosure of Supplementary Leverage Ratios (SLR) – the American interpretation of leverage ratio requirements defined by the banking legislation. “This new disclosure requirement will finally give the market a more apples to apples comparison of bank leverage,” says Kevin McPartland, head of market structure research at Greenwich Associates. “As the last few years have taught us, disclosure brings with it questions, and questions often lead to change.”
Growth in corporate bond e-trading and further adoption of trading protocols that go beyond traditional request for quote will also come into play this year but the report does not expect a big bang market structure change to occur. While the dynamics are different, McPartland believes that client execution habits for trading US Treasuries will become increasingly self-driven.
One of the biggest uncertainties facing the industry this year is the fallout from the 2014 FX fixing scandal. The big question is why, in a market with over 80% of volume executed electronically, a model developed decades ago is still used to set the “official” price, according to McPartland. “It is not clear if the regulators will move fast enough or come down hard enough on the industry to drive real change to this process in 2015, but you can certainly expect third-party providers to come to market with new 21st century solutions,” he added.
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