Weekly news up to 01/03/2024
Issue #25
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
Nearly one trillion dollars pumped into settlement penalties and resolution measures over past decade
📰Newsflash
📈Buyside
Over the past ten years, the capital markets industry has paid out $914.7 billion in the form of regulatory penalties and resolution measures, according to new research. At the peak of the market volatility in 2021, the research found the industry had spent $161.63 billion on resolving settlement failures within major equities and fixed-income markets alone. The issue is particularly pertinent given the upcoming shift to T+1 settlement in the US. The transition to the new settlement period will inevitably put further strain on settlement divisions and increase the likelihood of settlement risks and failures if infrastructure is not improved. One way of improving settlement efficiency will undoubtedly be through automation and transitioning away from legacy systems.
VanEck Starts Digital Asset Management Platform and NFT Marketplace
Following the approval of the first spot Bitcoin ETF this year, institutional interest toward crypto assets continues to rise. Eleven asset managers including VanEck, BlackRock and Fidelity Investments have rolled out spot Bitcoin ETFs so far. However, asset managers are also exploring other ways to ride the cryptocurrency trend. This week, VanEck announced it has started a digital asset management platform and non-fungible token (NFT) marketplace called Segmint. The goal of the platform is to streamline the sharing of access and ownership of self-custodied assets. As VanEck explains:
“Imagine having a secure vault where you can store your digital assets, and then effortlessly issue keys to others, granting them shared ownership without compromising security.”
VanEck aims for the solution to be made available for ‘everyone’ including crypto-native users and clients.
📉Sellside
Citi’s investment banking market share drops to lowest level since 2000
Citigroup’s share in the global investment banking market fell to its lowest level on record last year, according to new data from the London Stock Exchange Group. Citi’s investment arm accounted for just 3.4 percent of the market in 2023, a decrease of 0.2 percent on the previous year and its lowest return since records began in 2000. Citi attributed the slowdown to a global decline in dealmaking activity. JP Morgan’s investment banking arm accounted for an industry-leading 6.8 percent last year.
Morgan Stanley Bitcoin ETF Offering: Broker-Dealer Giant to take BTC to the Masses?
Morgan Stanley is reportedly exploring the addition of spot Bitcoin ETFs to its brokerage offerings. According to media reports, Morgan Stanley is conducting due diligence on the feasibility of offering Bitcoin spot ETFs on its platform. The move from Morgan Stanley into this space would highlight the increased acceptance toward crypto at an institutional level and potentially pave the way for further Bitcoin inflows. Bitcoin is currently trading at roughly $62,000 and is eyeing its all-time high price of $69,000.
✴️Digital transformation
FIS acquires post-trade platform Torstone Technology
Fintech giant FIS has acquired SaaS post-trade platform Torstone Technology. Torstone is a global SaaS platform for post-trade securities and derivatives processing technology for investment banks. The deal will further bolster FIS’ capital markets technology offering and adds to a growing roster of high-profile business deals. Some of its major recent mandates include a 10-year agreement to provide post-trade technology to BNP Paribas and $1.5 trillion asset manager Franklin Templeton outsourcing its entire global transfer agency (TA) operations to FinTech FIS.
Appian and Symphony team up for audited communications on non-compliant messaging platforms
Appian has partnered with markets infrastructure and technology platform Symphony to help create a platform that allows financial firms to communicate and collaborate compliantly in an increasingly regulated market. The partnership will enable customers to embed auditable, compliance-enabled omnichannel communications on popular platforms into their workflows for increased efficiency and transparency. This decade, the use of non-compliant messaging platforms such as WhatsApp by financial institutions has resulted in billions of dollars of regulatory fines, with institutions such as Morgan Stanley and Wells Fargo facing penalties. As such, the platform created by Appian and Symphony is pertinent to the current capital markets landscape.
📱Technology trends
Exchange and clearing house operator Intercontinental Exchange (ICE) has partnered with trading communications provider IPC Systems to launch ICE Voice, a cloud-based audio platform that provides communications for traders and market participants. ICE Voice will bring together its existing network of over 120,000 users to provide live, open connections between individuals or groups of traders across internal trading desks. Users will be able to instantly jump from chat to voice and open calls from chat tabs and group chat rooms, and create voice blasts to ‘shout out’ to groups of open connections simultaneously. ICE Voice will also support full audio recordings with anywhere, anytime playback of archived calls and integrated chat/voice logs to create a single record of communications.
Bankers Will See AI Transform Three-Quarters of Day, Study Says
According to a report by Accenture, AI is likely to replace or at least lend a hand in tasks that take up almost three-quarters of a banking employees’ work day. The report suggests that the banking industry will benefit more from the technology than any other industry. Specifically, the use of generative AI will play a pivotal role in spotting trends and patterns in large data sets, improving productivity and reducing long-run average costs. The study highlights just how far AI is dominating the capital markets industry.
🧑⚖️Regulatory developments
EU adopts instant payments rules
The European Council has adopted a new regulation that will make instant payments fully available in euros to consumers and businesses in the EU and EEA countries. The new rules, agreed by the Council and European Parliament last year, will allow people to transfer money within ten seconds at any time of day, including outside business hours, not only within the same country but also to another EU member state. Payment service providers such as banks, which provide standard credit transfers in euro, will also be required to offer the service of sending and receiving instant payments in euro at no extra cost. The move will help to improve payment efficiencies in the EU, as it will help reduce any excessive reliance on third-country financial institutions and infrastructures.
US regulators investigate whether OpenAI investors were misled
US regulators are investigating internal communications from the OpenAI chief executive, Sam Altman, as part of an inquiry into whether investors into the technology company were misled. The Securities and Exchange Commission (SEC) is looking into emails and internal records of directors and officials at OpenAI after it issued a subpoena in December 2023. The decision to investigate comes after Altman was ousted as the boss of OpenAI, after the board accused him of not being “consistently candid in his communications”and losing confidence in his ability to lead the company. However, less than a week later Altman was reinstated to the job.
📊Chart of the week
2023 was a progressive year for the APAC region in terms of implementing crypto regulatory standards, influenced significantly by the collapse of Terra, the algorithmic stablecoin created by Korean entrepreneur Do Kwon. Noteworthy developments came from Hong Kong and Singapore, in particular.
Hong Kong’s regulator, the Securities and Futures Commission (SFC) introduced a mandatory virtual asset service provider (VASP) licensing regime, allowing retail cryptocurrency trading for the first time. The Hong Kong Monetary Authority (HKMA) also proposed stablecoin legislation, driving innovation with projects like the tokenised green bond and the e-HKD pilot. In fact, according to the Worldwide Crypto Readiness Report, published in 2022, Hong Kong is the most ‘crypto-ready’ location in the world, due to its high number of blockchain start-ups per 100,000 people (3) and the fact that it does not charge capital gains tax on crypto profits.
Singapore established strict rules for licensed crypto service providers, which included the prohibition of offering customer incentives, accepting payments via local credit cards, or providing lending and staking services to retail customers. In 2023, Singapore issued six new licenses, bringing the total number of licensed crypto service providers to 17.
🐤Tweet of the week
Crypto exchange Coinbase was in the news this week, after suffering a glitch that temporarily left users seeing zero balances across their accounts. Coinbase assured customers that their funds were safe and cited increased traffic as the reason for the glitch. Interestingly, the glitch also coincided with a meteoric rise of the Coinbase application on Apple’s app store, which provides information about an app’s downloads, engagement and retention. As the tweet above shows, the app rose from 445th place to 150th place on the app store in just four days, indicating that retail interest is piquing in the crypto market. After the spot Bitcoin ETF approval this year, and the news flow involving Coinbase, it is probably safe to say that retail and institutional toward crypto is now substantive.
📄GreySpark insight
The financial services industry lives and dies with data. Streams of data, batches of data, most of it quantitative, pours through financial services systems day and night. Yet, the financial services industry has the reputation for being ‘bad with data.’ Not all financial services data is poorly managed – any trade lifecycle data is carefully and properly handled, analysed and stored. The challenge for financial systems lies in the sheer volume and complexity of the data running through the systems. Data that is reported to the regulators could often be of a better quality, however, and the reason for this goes to the heart of the communication problem between brokers and the regulators. As some in financial institutions see it, the data they generate, report and send to regulators is of no benefit to the firm itself, firstly. And, secondly, there is little regular feedback from the regulators to the brokers about the data. The feeling of many has been that the data they send simply falls into a big deep hole. The enforcement action taken in 2022 by the FCA may have disabused many of that notion to an extent.
Improving the quality of data is a challenge for many brokers because most firms were built by acquisition and so there can be multiple duplicative systems stitched together, many of which are based on old technologies.
Solving that challenge will be complex and costly, and in 2023 the industry must carefully evaluate improvement proposals and measure the benefits against the cost. When it comes to regulatory data, brokers must understand that this is the regulators window into their firm. If the window is not kept in proper order, the regulator will dig deeper and responding to regulatory enquiries will likely divert resources away from the business.
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