Top market structure trends for 2019
January 2, 2019

The post-credit crisis era is over in financial markets. Easy money policies around the world are coming to an end, interest rates are rising, volatility is returning, and what felt like endless market upswings are no longer assured.

If 2019 marks the start of a new era, a period of uncertainty will usher it in. Regulatory frameworks and technological innovations put in place since the crisis are, as yet, unproven under fire, and some trading desks are now run by people who were still in school when Lehman Brothers failed.

In this unsettled environment, Greenwich Associates today released its Top 9 Market Structure Trends for 2019, a list that includes:

Volatility Tests New Market Structure: The market structure built since the end of the global credit crisis might get its first real test in 2019. While Greenwich Associates says it is certainly not predicting any major market calamities in 2019, it fully expects market volatility to stay with us. This will also include general uncertainty among market participants, increased volumes across the board and varied methods of risk-taking and hedging—some of which will end poorly. As a result, today's market structure, which looks and feels vastly different than it did ten years ago, will be forced to prove that it has, in fact, made markets better and safer.

The Death of LIBOR: Although the death sentence handed out to LIBOR in the wake of the rates manipulation scandal won't officially be imposed for two years, the transition to new benchmarks like SOFR and SONIA will consume legal and operations teams for months to come. The impact of this on market structure goes beyond the US$350 trillion face value of financial products currently tied to Libor. Hedging vehicles will need to change, making some existing futures and swaps products less useful, and the exchanges will all fight to take control of new SOFR and SONIA contracts. Existing contracts need to be renegotiated as well, creating a huge operational burden for the industry that will consume legal and operations teams for months to come. In the long run, the industry will adapt and move on, but the short-term fight to change will be intense and meaningful.

Exchanges Grow in Importance (and Size): The importance of exchanges around the world has grown tremendously over the past decade, and 2019 will see them advance even further. The growth of exchange-traded funds (ETFs) and new exchange-listed and cleared derivatives will certainly help, as will further consolidation. But the real gains in 2019 will result from the push into two areas outside of their traditional sweet spots: products traded OTC and the sale of index-related products and data.

Data, Data and More Data: The data obsession within financial services is not over-hyped—not even close. The amount of data will only grow as we continue to scratch the surface in terms of ways it can be applied to making money in the markets, says Greenwich Associates.

 

 





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The post-credit crisis era is over in financial markets. Easy money policies around the world are coming to an end, interest rates are rising, volatility is returning, and what felt like endless market upswings are no longer assured.

If 2019 marks the start of a new era, a period of uncertainty will usher it in. Regulatory frameworks and technological innovations put in place since the crisis are, as yet, unproven under fire, and some trading desks are now run by people who were still in school when Lehman Brothers failed.

In this unsettled environment, Greenwich Associates today released its Top 9 Market Structure Trends for 2019, a list that includes:

Volatility Tests New Market Structure: The market structure built since the end of the global credit crisis might get its first real test in 2019. While Greenwich Associates says it is certainly not predicting any major market calamities in 2019, it fully expects market volatility to stay with us. This will also include general uncertainty among market participants, increased volumes across the board and varied methods of risk-taking and hedging—some of which will end poorly. As a result, today's market structure, which looks and feels vastly different than it did ten years ago, will be forced to prove that it has, in fact, made markets better and safer.

The Death of LIBOR: Although the death sentence handed out to LIBOR in the wake of the rates manipulation scandal won't officially be imposed for two years, the transition to new benchmarks like SOFR and SONIA will consume legal and operations teams for months to come. The impact of this on market structure goes beyond the US$350 trillion face value of financial products currently tied to Libor. Hedging vehicles will need to change, making some existing futures and swaps products less useful, and the exchanges will all fight to take control of new SOFR and SONIA contracts. Existing contracts need to be renegotiated as well, creating a huge operational burden for the industry that will consume legal and operations teams for months to come. In the long run, the industry will adapt and move on, but the short-term fight to change will be intense and meaningful.

Exchanges Grow in Importance (and Size): The importance of exchanges around the world has grown tremendously over the past decade, and 2019 will see them advance even further. The growth of exchange-traded funds (ETFs) and new exchange-listed and cleared derivatives will certainly help, as will further consolidation. But the real gains in 2019 will result from the push into two areas outside of their traditional sweet spots: products traded OTC and the sale of index-related products and data.

Data, Data and More Data: The data obsession within financial services is not over-hyped—not even close. The amount of data will only grow as we continue to scratch the surface in terms of ways it can be applied to making money in the markets, says Greenwich Associates.

 

 



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