Trends in Equities Trading 2014

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The Emergence of a ‘New Normal’ Trends in E-commerce and Electronic Trading

GreySpark Partners presents a report that examines the state of trading in equity markets. Trends in Equities Trading 2014, assesses the ‘new normal’ that is emerging in equity markets as trading volumes grow and revenue projections become more optimistic. The market friction created by recent regulations in the US and EU, such as MiFID II, are causing market liquidity to decrease. Meanwhile, the quality of available liquidity is improving as the cost of trading in equity markets increases.

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Equity markets are at a turning point as large sellside flow houses and prime brokers prosper again while boutique offerings grow their aggregate market share. The remaining players, primarily mid-size firms, must adapt to this altered landscape. The fallout from the financial crisis saw the profits of these banks and investment houses squeezed as the cost-per-trade rose, and they struggled to maintain market share. Pre-crisis investments in large-scale, industrial trade processing platforms became costly to maintain. To survive and return to profitability, the firms in the squeezed middle must adopt one of four strategies: specialisation, reduced ambition, monetisation of the franchise and financing volume.

Technology innovation in equity markets changed direction as the race-to-zero latency and the pursuit of high-frequency trading cooled. The focus now rests on the convergence of high-touch and low-touch trading platforms as the competitive gap between the providers of low-touch and high-touch platforms narrows due to the continuous functionality enrichment of low-touch offerings. Banks looking to reduce their trading platform costs will simplify and consolidate their platforms where possible. GreySpark believe that the coming 18-to-24 months will witness many banks eliminate the need for separate low-touch and high-touch trading platforms as they invest in consolidated third-party vendor offerings. This belief is furthered by a trend towards independent software solutions as the technology stack has become commoditised, and only those functions that offer a competitive advantage will be maintained in-house.

Published on: 12 Mar, 2014

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Trends in Equities Trading 2014 – Table of Contents

  • 1.0 The ‘New Normal’ – Reduced Revenue Pools
    • 1.1. Regulations Increase Market Friction
    • 1.2. Fragmentation is Reaching its Natural Equilibrium
  • 2.0 The Return to Profitability and Capacity Reduction
    • 2.1. Staffing Levels
    • 2.2. Technology Spend
    • 2.3. Escaping the Squeezed Middle
    • 2.4. Strategies for Returning to Profitability
  • 3.0 The Arms Race is Over for Equities, the Most Electronic Asset Class
    • 3.1. High-frequency Trading
    • 3.2. The Race to Zero-latency is Over
    • 3.3. Convergence of Low-touch and High-touch Platforms
    • 3.4. Technology Commoditisation – Buy, Don’t Build
  • 4.0 Appendices
    • 4.1. Glossary of Terms
    • 4.2. Table of Figures
    • 4.3. Methodology