Trends in Trading Technology 2024
The Convergence of High-Touch & Low-Touch Trading Strategies
Our latest report titled Trends in Trading Technology 2024 is now available on our website.
A snippet from the report can be found below:
Over the past 15 to 20 years, the financial industry has been through a period of significant transformation, driven by market, regulatory, and technological changes. The rise of new kinds of trading venues, including multilateral trading facilities, alternative trading tools, electronic communication networks, crossing networks, and dark pools, has expanded the types of trading styles firms need to be fluent in. Automated trading has become a key component of both agency and principal trading workflows, with a notable and focused shift from traditional voice-based trading to algorithm-driven electronic trading. Electronic trading now accounts for over 85% of global trading volumes, with automated trading contributing approximately 25% to total trading volumes, and this trend is expected to continue.
Regulatory changes, brought about in large part due to the 2008 financial crisis, have further fuelled the markets shift to low-touch trading. Regulations such MiFID in Europe and RegNMS (Order Protection Rule) in the United States have fragmented liquidity and driven market participants towards electronic trading. The ripple effects of these new regulations include the disintegration of historical exchange monopolies, leading to the growth of alternative venues and electronic dark pools. Furthermore, sales-trading headcounts at brokerage firms have declined as they adapted to the new environment.
In response to the changing trading environment of their clientele, technology vendors have seen a wave of market consolidation with numerous mergers and acquisitions giving rise to larger firms that can cover more of the clients’ new requirements. Key mergers within the space include ION’s acquisition of Fidessa, Broadridge’s acquisition of Itiviti, and Itiviti’s merger with Ullink. Due to the competitiveness of the market, vendors have been attempting to acquire differentiating capabilities within their trading platform offerings, including:
Ultra-low latency (ULL) capabilities
Data analytics
AI functionality
Access to new markets, both mature and frontier markets such as the MENA region
New assets classes, such as cryptocurrencies
A major motivation to acquire has also been the elimination of competitors and the growth of your own market share - ION acquiring Fidessa falls into this bucket. Ion Group has long been an aggregator of solutions in trading technology, especially in fixed income, but also importantly in equities trading with the 2018 acquisition of Fidessa, market leader in high-touch agency trading software.
This transaction, combined with the decommissioning of Bloomberg Sell-Side Execution and Order Management Solutions in 2019 has left a gap in the market for many investment banks looking for new technology or vendors. Thus the boom in M&A has also created opportunities for other vendors to fill the gap in the market, as trust in larger incumbents has eroded and clients are seeking smaller companies with which to partner over the long term on technology.
Discover more here.