New Year New Tech New Research

In your new year resolutions, did you pledge to understand more the technology that scares you? Or at least the one that some people (aka analysts like me) claim will replace you? If the answer is “No” and you are working in the field of Investment Research, whether producing, consuming or distributing it, then you may want to read our latest report Start Coding Investment Research: How to Implement MiFID II with Robots and AI.

I get paid to write research on fintech so theoretically I am not the tech scared type though I am the first one to control screen time at home. I know we have more and more competition from free research you can all find at your fingertips on the internet, and from cheaper research that leverages outsourced resources crunching a lot of data, but so far we are keeping up probably because our clients think we provide insight that those competitors do not provide yet.

I know however that we have competitors that have technological platforms that distribute their technology in a more user-friendly way with podcasts and fancy databases, that write their research in a more automated way and that you can consume easily because you pull the information with selective search technology that knows what you want and how much you can pay for it.

So before the holiday season, to make sure we were all going to start this new year with the right information in hand, I did look into what artificial intelligence and robotic process automation tools will be doing to research; not exactly my kind of markets fintech research, but more specifically to Investment Research, those written recommendations about equity or bonds or macroeconomic environments to help the buy side make investments.

The result is very honestly scary and exciting at the same time. These new  technologies are maturing at a time of big regulatory change in Europe, MiFID2 is finally kicking in and that means the unbundling of investment research cost from the execution costs the brokers and banks charge their buy side clients. Some buy side will keep using them and be happy to pay that fee, some clearly will start looking at other solutions that will have to propose a different business model provided by banks or by new market players, based on technology.

In our recent report we do look exactly at that: new business models and live case studies that have already been implemented in investment research production, distribution and consumption. Enjoy.

Challenging times for the post-trade industry: improving efficiency and achieving stability amidst growing complexity

The challenges facing the CCPs and CSDs are manifold. Not only are they having to adapt to the downstream effects of changes in the trading environment, they are also presented with unique challenges impacting their business and operating models. Celent just published a research study titled “Challenging Times for the Post-Trade Industry: Improving Efficiency and Achieving Stability Amidst Growing Complexity” analyzing the global, regional, and local developments impacting the CCPs and CSDs. The changing regulatory environment is the dominant force impacting post-trade industry players. Several key regulations such as Dodd-Frank, Basel III, CRD IV, MiFID II, EMIR, CSD Regulations, and AIFMD are having impact on the way CCPs and CSDs perform. At times there is a lack of clarity and co-ordination among regulators in different jurisdictions; this results in lack of synchronization and standardization of some of the key regulations, creating confusion and making the job of responding to the changes difficult for industry participants. In addition to regulatory changes, market structure related changes  (such as T2S in Europe and shortening of settlement cycle across the world) are having significant impact on post-trade players. Though not traditionally very competitive, the post-trade industry is likely to become more competitive. Europe is leading the way in this regard, with CCP interoperability already in place and T2S and CSDR likely to do the same among the CSDs. Learning from the European example, other markets are considering introduction of competition in their CCP space by allowing international players in domestic markets. Post-trade players have been laggards compared to other parts of the capital market value chain when it comes to adoption of technology. Driven by regulatory and market forces, as well as emerging concerns around cybersecurity, they are now undergoing major reviews and upgrades in their technology and operations. We identified 12 key markets across the globe for this analysis including the US, UK, Germany, Czech Republic, Japan, Australia, Hong Kong, China, India, Brazil, Mexico, and Chile. This research is part of Celent’s ongoing coverage of the post-trade industry and was commissioned by Nasdaq , while Celent kept full editorial control. To complement Celent’s post-trade knowledge base from our existing and ongoing research, this research greatly benefitted from detailed discussions with representatives from 17 major industry participants representing different types and categories of players across the world. Find out more about the report at Celent or Nasdaq’s website.

MiFID II, multi-asset trading among key themes at Fixed Income Leaders Summit

Several key themes emerged from the sessions at the Fixed Income Leaders Summit last week in Barcelona. Below are the two of the major themes: Regulation – MiFIR/MiFID II dominated the agenda Following last month’s RTS release, most people wanted details on the impact to their business, likelihood of changes to the ESMA document and if there will be a push back to the January 2017 start.
  • While European sell side and large buy side have been engaged in varying degrees with the process, US firms and smaller European buy side firms are still not clear that Europe is boiling the ocean with MiFIR/MiFID II.
  • It was clear that buy side preparation for engaging with the evolving execution space OTF/MTS/RM and SI is extremely low. And of course, the reasons are clear—there is a fundamental lack of clarity on expectations to operate in the new regime as well as the actual timing when these requirements will be manifest.
  • While the debate to finalize and accept the RTS proposal from ESMA occurs, there is tremendous confusion on final requirements. Without a delay to the January 2017 implementation, the longer the debate, potentially the less time firms will have to prepare and implement to the final required state.
  • The top concern that the buy side had was the fear that their traditional market making liquidity providers will exit the credit and rates markets and the liquidity from alternative providers,and in platforms, will not be sufficient to satisfy their trading needs.
Multi-Asset Trading Most buy side firms are looking to leverage the best tools that exist from other asset classes into their daily workflows in fixed income products. While all were cognizant of the deep differences between equities, FX and the fixed income universe, the buy side was engaged in discussions on the details of the regulatory, market structure, liquidity, and technology challenges; and clearly were looking for multi-asset solutions for fixed income connectivity, analysis and TCA.
  • Firms were deeply engaged in discussions that shed light on the process that other asset classes went through, and how that process played out. There is a great deal of trying to understand the context of the MiFIR/MiFID II change with lessons from other recent regulatory changes. There was a strong desire to understand the implications of Regulation NMS on US equities and the respective market structure, fragmentation and technology implications. Likewise, MiFID I and the SEF rules in the US and the move to centrally cleared swaps and derivatives in the US was another area that was discussed to glean lessons for changes that might come to Europe.
  • Europe is boiling the ocean in fixed income with MiFID II and firms are trying to understand the myriad changes, the timing of change, and the many complicated means of judging the type of rules that will apply in government and corporate bonds.