Weekly digest
Weekly news up to 27/10/2023, Issue #11
Hello everyone and welcome to the latest edition of GreySpark Insights.
Please do not hesitate to contact us with any questions or comments you may have. We are always happy to elaborate on the wider implications of these headlines from our unique capital markets consultative perspective. Happy reading!
Top story
Private equity firms face worst year for exiting investments in a decade
Newsflash
Buyside
Private equity firms face worst year for exiting investments in a decade
Private equity firms are facing the worst year in almost a decade for selling portfolio companies after treacherous macroeconomic conditions, including stubbornly high interest rates and geopolitical tensions have sapped confidence once again. According to Pitchbook, in the first nine months of the year, buyout firms generated $584 billion from either selling companies or taking them public, reflecting a $100 billion decrease over the same period last year. The last time buyout firms made less cash in their existing portfolios was in 2013.
Largest asset managers shed $18trn AUM in 'first significant drop' since Global Financial Crisis
Assets under management among the world’s largest investment firms has dropped 13.7% in 2022, according to research from Thinking Ahead Institute. The world’s 500 largest asset managers’ total assets in 2022 amounted to $113.7 trillion, compared to $131.7 trillion in the previous year. European managers suffered an above-average 16.8% decrease, while North American managers experienced a 14.2% decrease.
Sellside
Goldman Sachs is expanding its use of a technology that leverages artificial intelligence, in the hopes that it will make it easier for clients to plan complex derivatives trades. After already using the software to shake up the worlds of equities and foreign exchange options, the firm has allowed its clients to use its visual structuring product for credit derivatives. Goldman is aiming to offer the solution for rates trading in the first half of next year.
BNY Mellon introduces Universal FX
This week, BNY Mellon announced the launch of Universal FX, a new foreign exchange platform that allows more advanced features for BNY customers. Through Universal FX, clients can now manage their whole portfolio, irrespective of where they custody, prime broker or settle trades. The solution provides access to developed market and emerging market currency execution, improving the FX experience for clients globally.
Digital transformation
Deutsche Bank and Standard Chartered pilot network for stablecoins and CBDCs
Deutsche Bank and Standard Chartered have carried out the first digital currency transfer and swap on the new Universal Digital Payments Network. Unveiled earlier this year, the UDPN is a DLT-based messaging architecture that seeks to provide interoperability between stablecoins and CBDCs, thereby enabling connectivity between any business IT system and regulated digital currencies. In the first proof-of-concept for the network, Deutsche and Standard Chartered's SC Ventures executed a real-time on-chain transfer and swap between USDC and EURS stablecoins on the infrastructure.
Euroclear Unveils RWA Tokenization Service With World Bank's 100M Euros Digital Bond Issuance
It’s that ‘T’ word once again! This week, major European clearing house Euroclear unveiled its tokenised securities issuance service with the World Bank’s 100 million-Euro digital bond issuance. Euroclear's Digital Securities Issuance (D-SI) business will assist in issuing, distributing and settling fully digital financial assets on distributed ledgers. The bonds in question will be listed on the Luxembourg Stock Exchange, with Citigroup acting as the issuer agent and investment manager. This once again highlights the increasing convergence of traditional finance services and digital assets.
Technology trends
LSEG unifies global finance ops on Oracle Cloud
London Stock Exchange Group is unifying its global finance operations on Oracle Cloud, replacing a series of legacy systems with the vendor’s applications. Altogether, LSEG is replacing 17 of its legacy systems with Oracle, following a series of acquisitions over recent months. LSEG states that the amalgamation of its service platforms will increase efficiency and reduce costs.
ION’s LIST completes client migration onto Euronext’s Optiq trading platform
ION subsidiary LIST has completed phase two of the migration of its Borsa Italiana clients onto Euronext’s Optiq technology trading platform. The move follows a successful rollout of the equity segment in March 2023. LIST has upgraded its FastTrade trading solution to accommodate the migration of Italian bond markets to the new platform, providing Italian sell-side clients increased access to international investors.
Regulatory developments
MAS orders DBS and Citibank to investigate lengthy outage
The Monetary Authority of Singapore has ordered DBS and Citibank to investigate why it took so long to get their systems back up and running after an outage earlier this month that disrupted online and payment services. Between the afternoon of 14 October and the following morning, DBS and Citibank customers were unable to access apps and online banking as well as payment services such as PayNow. According to Equinix, the outage was caused when a planned upgrade at a data centre was hit by a problem with the centre's cooling system. The banks activated their back-up data centres but systems were not fully recovered within the four-hour limit required by the regulator. This once again underscores the need for robust operational resilience practices — something that GreySpark will be looking into over the coming weeks.
Opaque practices await UK regulators in private asset valuations probe
The Financial Conduct Authority (FCA) is expected to begin a review of private asset valuations this year, with the valuations of some private assets being left down to guesswork and rigour due to their opaque nature. As such, some of the outdated valuation methods, which include manual quarterly reporting, could be akin to fraud, according to the UK government. The outcome of the review will not be clear until the middle of 2024.
Chart of the week
A survey conducted by Quantifi of 160 financial executives found that 50% support the increased regulation of ESG evaluations. The regulation of ESG evaluations has been a subject of interest lately in the financial industry. ESG ratings are used by investors, including banks, to assess the sustainability and ethical impact of potential investments.
ESG ratings are used by investors, such as banks, to weigh up the sustainability and ethical impact of potential investments.
In June 2023, the European Commission proposed new rules regarding the transparency and integrity of ESG rating practices. The proposal addresses concern about the dependability and transparency of ESG ratings. If approved, it would establish new regulations for an unregulated market in Europe, mandating that EU and third-country market participants who commercially provide ESG ratings acquire authorization and oversight from ESMA. A recognised regulatory framework for ESG ratings could help to reduce greenwashing, which is where companies overstate their ESG initiatives to seem more sustainable than they actually are.
Tweet of the week
Source: Sam Altman via ‘X’
Well said, Sam!
GreySpark insight
The repo market is seemingly in a transitional phase, with automated trading technologies now prevalent alongside more traditional voice-trading methods.
However, the typically non-standard nature and complexity of repo instruments can be a challenge for CIBs when attempting to automate, electronify and systematise their trading business models in that many repo trades remain highly bespoke in terms of:
• Size;
• Term; and
• Collateralisation; as well as often carrying other individualised features like optionality on either an implied or on an explicit basis.
These factors add to the overall complexity associated with full market automation in that the market data required to power repos trade pricing in an e-trading setup is not commonly readily-available for bespoke transactions. As a result, the automation of trading associated with accounting for other factors such as trade events and trade booking are also complicated by the sheer number of specialised variables that must be accounted for. The execution of repo trades can also be complex; even common, and seemingly straightforward, trade types such as open trades without a fixed end date can be complex to book or value, for example, due to their inherent optionality. Likewise, so-called evergreen or extendible repos are not currently available on most e-trading venues. Voice trading persists within the repo market as a kind of ‘cultural norm,’ and while this reality does not necessarily stand in the way of technological advancement, it may tend to promote a corresponding persistence of existing legacy technology stacks.
Discover more here.
What has caught our eye?
Integrating Digital Assets and Crypto Into Traditional Finance
This intriguing piece from PitchBook takes a look at the continued integration between traditional finance and crypto. As well as providing an overview of crypto service offerings among the world’s largest financial institutions, it also takes a look other trends within the digital assets ecosystem, such as tokenisation and blockchain. It’s an insightful for read for anyone looking to get up to date with institutional activity in the crypto space.
How entity resolution addresses the growing challenge of risk data management
This piece from Fintech Global takes a look at the application of entity resolution, and how this can help tackle pain points in institutional data consolidation. For example, entity resolution can help to amalgamate fragmented data sets and minimise duplications, while maintaining regulatory compliance. It’s definitely worth a read!
The Next phase of cyber protection: pre-emptively detecting attacks
This piece by Globalbankingandfinance.com takes a closer look at an emerging cyber security trend called Online Exposure Monitoring (OXM). OXM offers the ability for organisations to pre-emptively detect attacks, providing a holistic view of the entire attack chain, and identifying potential weak points in technology systems before attackers exploit them. In today’s digital world, organisations only tend to focus on threat detection only once an attack is underway, which can prove to be too late. OMX can stop cyber attacks at source, and prevent the disastrous knock-on effects that they could potentially have for organisations.
Have your say
We’d love to hear from you! If there are any topics or trends you’d like to see covered, please comment down below.