Weekly digest
Weekly news up to 29/09/2023, Issue #7
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
Consortium of five global banks to collaborate on position reporting (see more below)
Newsflash
Buyside
Asset managers not prioritising research budgets as prospect of rebundling looms
According to a survey by Substantive Research, the average investment research budget among asset managers has fallen by 6.5 percent this year. One reason for the shrinkage in investment research spend is the growing shift toward passive fund management from active fund management, where investment research becomes irrelevant. The big question is whether the “rebundling” or a relaxation of MiFID II rules mandating the unbundling of research payments for commissions, can prompt a turnaround in the global investment research industry.
FX traders double down investment in data capabilities to improve execution
A survey of 120 FX professionals by Coalition Greenwich found that 57 percent of FX professionals believe their data management procedures in FX execution need improvement. According to the priority, improving analytics and execution management is a top priority. Given the changing landscape, and the implementation of the new T+1 trade settlement cycle in the US, robust and agile trade data management systems will be imperative over the coming months.
Sellside
Goldman to pay $6 million in penalties for deficient ‘blue sheet’ data
On September 25 2023, the SEC announced charges against Goldman Sachs for failing to provide complete and accurate securities trading information, known as blue sheet data. Over a period of ten years, Goldman made more than 22,000 deficient blue sheet submissions to the SEC, which included inaccurate trade data for at least 163 million transactions. The SEC found Goldman guilty of violating broker-dealer recordkeeping and reporting provisions of the federal securities laws, subsequently facing a $6 million penalty.
JP Morgan at top of global investment banking deal table
Global investment banking fee pools have dropped by 21 percent so far this year, amid a period of slowing dealmaking. JP Morgan currently sits top of the tree in terms of dealmaking by bank, claiming 8.6 percent of the fee pool globally. This is up from 7.8 percent at the same point last year. Second-placed Goldman Sachs claimed 7 percent of the global fee pool, down from 7.3 percent at the same point last year.
HSBC set to acquire Citigroup China consumer wealth business
HSBC is set to acquire Citigroup’s China wealth management business, which manages more than $ 3 billion in assets. While further details aren’t immediately known, sources at Reuters believe the deal could be announced as soon as next month.
Digital transformation
European Central Bank Explores AI
The European Central Bank (ECB) is tentatively exploring the use of AI to automate administrative tasks, while studying deeper integration. In particular, the ECB is weighing up the use of Chat-GPT-like language models for things such as document analysis and software testing. Nevertheless, the ECB retains a cautious stance toward the use of AI and is considering aspects such as data privacy and legal constraints before full implementation.
Technology trends
JP Morgan’s UK bank Chase UK to ban cryptocurrency purchases over fraud fears
JP Morgan’s UK bank Chase UK will stop customers buying cryptocurrencies from next month to combat rising numbers of criminals using digital assets to target victims. The response from Chase UK comes after new data revealed that crypto-related fraud losses increased by 40 percent in the year to March 2023, surpassing £300 million for the first time.
Ediphy unveils fixed income workflow tool
Ediphy, a provider of fixed income trading technology, has launched a new all-in-one platform aimed at addressing workflow and data challenges in the fixed income space. The solution, called Ediphy Context, captures internal data for clients, including orders, and RFQ history, while combining these functionalities with liquidity data from various market channels.
Regulatory developments
Consortium of five banks to collaborate on position reporting
Five major international banks, including HSBC, Goldman Sachs and Barclays, have announced the formation of the Endoxa Consortium, to establish a position reporting utility (PRU) framework. The PRU will be designed to improve the quality of disclosures and mitigate interpretation and implementation errors.
Endoxa will also evaluate and review shareholder disclosure obligations across key regulatory jurisdictions. The initiative will be supported by technology provider Droit, and should allow financial firms to deal with more complex regulatory reporting requirements.Top financial regulator FSB seeking global clampdown on hedge fund borrowing
Financial Stability Watchdog (FSB), the world’s financial stability watchdog is launching a probe into the build-up of debt outside traditional banks, as it seeks to limit hedge funds’ borrowing. Non-bank leverage can threaten financial stability and lead to ripple effects of defaults and market contagion if risks aren’t properly mitigated. The FSB doesn’t have legally binding powers, but can set agendas through recommendations to regulators in their specific jurisdiction.
Bank of England set to delay bringing in Basel overhaul of banking rules
The Bank of England is planning to push back implementation of the final round of Basel reforms by six months to July 2025. The Basel reforms are the global regulatory overhaul announced in the wake of the 2008 financial crisis, which set minimum standards for liquidity and capital requirements. The changes will require banks to hold more capital, meaning they’ll make less profit on lending practices. The delays have been made to allow more time for regulatory adjustment, and appease banks amid backlash from the banking sector.
Chart of the week
The fear and greed index is a tool developed by CNN Business to measure investor sentiment toward financial markets. Currently, the index currently sits in the “extreme fear” or red zone, with a myriad of factors such as rising interest rates, stubborn inflation and slowing economic growth depressing investor sentiment. This is the first time the index has fallen into the “extreme fear” zone since March 2023. Could a market correction be just around the corner?
Tweet of the week
Take a look at this:
https://twitter.com/ghose77/status/1706018957201715354
Talk about a legacy system!
GreySpark insight
Machine learning (ML) – a subset of AI – is the application of algorithms that imitate the way that humans learn. ML is taking on an increasingly important role and function among financial firms as data and regulatory requirements become more complex. Generally, the underlying reasons for the appropriateness of ML as a tool can be divided into three main categories:
Multiple / Interdependent Factors – When rules that depend on many factors overlap or need to be tuned finely, it can be difficult to code them effectively. ML can help solve this problem, being more efficient than a human could at dealing with all scenarios;
High Volumes of Data – There is a limit to the number of documents that a human can read and decide whether they are relevant for a closer review. As the number of documents increases, a comprehensive review of all documents by human resources can become unfeasible. ML solutions, however, are effective at processing and reviewing large numbers of documents and;
Patterns and Trends – When there are trends and patterns in data, ML can often identify them, even where a human might struggle.
Discover more here.
What has caught our eye?
This piece by FinXTech takes a look at the 2023 Technology survey conducted by Bank Director. The survey, which questioned 102 independent directors, chief executive officers, chief operating officers and senior technology executives of U.S. banks below $100 billion in assets, gained some intriguing insights — in particular, Just 18 percent of bank leaders believe their organization has the tools it needs to effectively serve Gen Z customers, between 16 and 26 years old. 42 percent are concerned by the ability of Neobanks to attract customer deposits.
This piece by Fintech Futures takes a deep dive into the current threats faced by the financial services industry. One important but often overlooked threat is the threat posed by cyber attacks. Banks’ digital channels are constantly exposed to cyber attacks, with any breaches potentially inflicting large financial and reputational costs. Therefore, it may be slightly concerning to learn that several jurisdictions are still lacking specific cyber security and risk management regulations. This piece helps to outline what measures can be taken to mitigate this risk.
This piece by The Trade takes a look at the fixed income landscape, highlighting how the integration of ESG factors and the proliferation in fixed income- based ETFs have caused the landscape to evolve, and continue on its path of digitisation. Additionally, The Trade points out how data management amid fixed income markets is enhancing, with the application of AI through leading vendors such as Overbond, and plans to finally implement a consolidated tape in the EU.