Weekly news up to 03/05/2024
Issue #33
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
EU expands AML regulation, impacting cryptocurrency compliance
📰Newsflash
📈Buyside
Asset managers looking to shake up strategy in next two years, Northern Trust survey finds
A recent survey from Northern Trust gave key insight into how asset managers will evolve over the next two years. Of the 300 survey respondents, with 90 per cent managing more than $10 billion in assets, 83 per cent revealed they are planning to change product strategy within the next two years, with 57 per cent indicating that they intend to use a specialist data provider as the competition for quick, quality data hots up. In addition, the percentage of asset managers invested in digital assets is expected to rise from a current figure of 32 per cent to roughly 49 per cent over the next two years, highlighting the growing integration and popularity of digital assets.
Fundraising concentration intensifies as closes hit six-year low
The private equity industry is showing powers of recovery after a turbulent 2023 that was marred by high interest rates and geopolitical tensions. In March 2024, there were a record 4,321 private equity funds in the market, holding more than $1 trillion in assets. According to Preqin, the number of funds that closed in the first three months of this year was the lowest in any quarter since 2018, with the private equity industry also sitting on record levels of dry powder.
📉Sellside
Pleo secures €40M debt financing from HSBC Innovation Banking
Pleo, one of Europe’s leading spend management platforms, has secured a €40 million debt financing facility from HSBC Innovation Banking UK. The deal enables Pleo to offer higher credit limits to even more customers, providing greater flexibility in financial options available to them on its platform. With Pleo’s overdraft facilities already in use across Sweden, Germany, the UK, it will use the debt financing facility to drive further growth across Europe. Over the past six months, the average company has seen 6 per cent of their total transactions fail due to insufficient funds. Pleo’s partnership with HSBC Innovation Banking will help to alleviate such pain points and help improve market efficiency with the support of HSBC.
Barclays cut dealmaking jobs as company transformation continues
Barclays has announced it is cutting around 100 jobs in its investment banking and capital markets units as it continues its $2 billion cost-cutting drive under Chief Executive CS Venkatakrishnan. In February 2024, Venkatakrishnan laid out a plan to ramp up revenues and reduce costs, which will look to reduce its reliance on its investment bank without shrinking the unit significantly. Globally, Barclays currently ranks sixth by investment banking revenue in 2024, with $880 million, according to data provider Dealogic, and holds 3.3% of the market.
✴️Digital transformation
Blockchain researchers use AI to spot Bitcoin money laundering
Researchers from Elliptic, IBM Watson and MIT have used AI to detect money laundering on the Bitcoin blockchain. Back in 2019, blockchain analytics firm Elliptic published research with the MIT-IBM Watson AI Lab, showing how a machine learning model could be trained to identify Bitcoin transactions made by illicit actors, including ransomware groups and darknet marketplaces. Now, the researchers have applied new techniques to a much larger data set, containing nearly 200 million transactions. Rather than identifying transactions made by illicit actors, a machine learning model was trained to identify “subgraphs”, which are chains of transactions that represent Bitcoin being laundered. Working with a cryptocurrency exchange, less than one in 10,000 accounts were flagged, suggesting good performance of the model. The researchers are now making their underlying data publicly available.
HSBC and PayPal tackle quantum-safe cryptography in payments
HSBC and PayPal are among the founding members of a new working group investigating the adoption of quantum-safe cryptography in the payments industry. With the ubiquity and sophistication of cyber-attacks on the rise, financial firms are exploring more advanced ways to bolster their cyber defences and business processes. In the working group, participants will help define requirements, identify dependencies, use cases, and create a roadmap to implement post-quantum networking to help mitigate the anticipated risks associated with quantum computers.
📱Technology trends
Deutsche Börse backs private market trading platform Forge for European launch
Forge, the operator of a marketplace for trading in private companies, has launched in Europe with the support of Deutsche Börse, following a period of healthy growth. Its platform has seen the proportion of private market transactions with international buyers or sellers increase over time to 26 per cent in 2024, up from roughly 13 per cent in 2018. With over $14 billion traded on its platform in more than 500 private companies, including Klarna and Spotify (now public), Forge Europe is integrating into one of the largest global marketplaces for private company share trading in the world. The launch of Forge’s private marketplace in Europe, with the support of Deutsche Börse, highlights the growing democratisation and popularity of private market investing.
DTCC connects Saphyre’s trade solution to ALERT platform
The Depository Trust and Clearing Corporation (DTCC) is collaborating with Saphyre to provide a combined solution to support clients with T+1 settlement requirements. As part of the deal, Saphyre’s Ready-To-Trade solution will be linked with data from DTCC’s ALERT feature, with a view to increasing transparency and efficiency in the institutional trading market. Ready-To-Trade subscribers will be able to query the status of critical standing settlement instructions (SSIs) data for all accounts, across all parties and across electronic systems directly from the Saphyre platform. The solution should help to drive trade efficiency and reduce potential bottlenecks that may result from a shortened and more frenetic T+1 trade settlement window, which is effective from 28 May 2024 in the US.
🧑⚖️Regulatory developments
JPMorgan expects added $100M penalty for trade surveillance shortcomings
JPMorgan Chase said it expects to pay an additional $100 million penalty to an unnamed regulator to settle alleged trade surveillance failures that have already incurred significant fines by two other agencies. In March 2024, the Treasury Department’s Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB) issued penalties worth more than $348 million against JPMorgan for allegedly failing to surveil “billions” of transactions on 30 trading venues. In a regulatory filing on Wednesday, JPMorgan revealed that a third US regulator will require it to “pay a civil penalty of $100 million after offsets for amounts paid to the OCC and FRB.”
EU expands AML regulation, impacting cryptocurrency compliance
The European Parliament has voted to approve laws to strengthen the EU’s AML and terrorist financing regulatory landscape, which is set to have a significant impact on the cryptocurrency industry. The measures will seek to create enhanced due diligence measures and checks on customer’s identity. In-scope entities such as banks and cryptocurrency asset managers will have to report any suspicious activities to Financial Intelligence Units (FIUs) or other competent authorities, representing an increase in the amount of due diligence currently faced by the crypto industry in the EU. The Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) will be established in Frankfurt to supervise these new rules. AMLA will supervise the “riskiest” financial entities, intervene in cases of supervisory failures, act as a central hub for supervisors and mediate disputes between them.
📊Chart of the week
Source: @QuintenFrancois via ‘X’
Cryptoassets are continuing their unstoppable integration into the global financial system in 2024.
The chart on the left shows the price of Bitcoin after US regulators approved the first 11 spot Bitcoin exchange traded funds (ETFs) in January 2024, in what was a watershed moment for the global financial sector.
On 30 April 2024, Asia’s first spot Bitcoin (and Ethereum) ETFs came to market, with the launch of six ETFs on the Hong Kong Stock Exchange, managed by China Asset Management (ChinaAMC), Harvest Global and Bosera HashKey. Collectively, the ETFs saw inflows of $292 million on the first day. That figure is dwarfed by the $4.5 billion first-day volume for the spot bitcoin ETFs launched in the U.S earlier this year.
However, the caveat is that although the Hong Kong market is smaller, the issuers of the ETFs already had assets under management lined up before trading began, whereas in the U.S. this was held back until the ETF debut. A key difference between the ETFs in the US and Hong Kong is that in the US, the ETFs require cash creation and redemption, whereas in Hong Kong, investors are able to use Bitcoin or ether directly to buy or sell the ETFs if they prefer. To be clear, investors in the Chinese mainland are restricted from investing in the products. Nevertheless, the listing of Bitcoin ETFs on the Hong Kong Stock Exchange for the first time provides a clear path to institutional adoption of cryptoassets in the Asia-Pacific region.
As you can see, both ETF launches were something of a ‘sell the news’ event, with the price of Bitcoin, perhaps surprisingly, dropping in the aftermath of their release, despite significant inflows and excitement. However, if history is anything to go by, the price of Bitcoin could resume on its upward trajectory in the near future, with institutional demand now likely to reach its highest ever level, against the backdrop of a possible Bitcoin supply shock stemming from its halving event last month.
🐤Tweet of the week
This week, a powerful but mysterious new AI chatbot showed up briefly on LMSYS, a well-known platform that AI researchers and developers use to test their products in a ‘chatbot arena.’ The chatbot fleetingly impressed many observers, with advanced coding and reasoning capabilities not yet seen in mainstream chatbots, before being removed.
The sudden appearance of this chatbot sparked a speculative frenzy, with many people suggesting the model belonged to OpenAI - the creators of the popular generative AI model ChatGPT. Although labelled ‘gpt2-chatbot’ as shown above, it is not clear as to whether it actually belongs to OpenAI. One ‘X’ user claimed that the chatbot nearly coded a perfect clone of the mobile game Flappy Bird. Another ‘X’ user says it solved an International Mathematics Olympiad problem in one shot.
Could the AI trend be about to take another turn?
📄GreySpark insight
Here’s a snippet from our latest buyers guide, Buyside & Sellside low-code/ no-code solutions 2024.
In 2024, low-code and no-code (LCNC) software refers to those platforms / solutions that provide users with the ability to develop software applications with greater ease and speed than traditional development methods, either via partially automated coding or with pre-made design tools to create or customise programs independently. Essentially, LCNC platforms / solutions offer drag-and-drop ‘studios’ to design processes that buyside firm or CIB applications can then execute. Often, the design of these processes may occur with the help of pre-built blocks that are used to quickly create common application components. In financial services, those building blocks include popular system integrations; for example, with middle- or back-office systems, market and static data interfaces as well as FIX APIs and other types of application programming interfaces. The capital markets industry recently experienced a rapid rise in popularity of the LCNC tools as part of a wider trend across software development.
Some of the drivers of adoption include:
increasing digitisation across the industry;
a general shortage of developers and development expertise for the volume of work required;
the requirement for fast-to-market applications in response to significant changes across the industry; for example, increased remote working, increased use of Cloud and software-as-a-service technology, increased electronification of markets and increased regulatory burden;
sector-wide acceptance at management-level that technology of this kind can be ‘trusted’; and
the ongoing push to eliminate uncontrolled and insecure end-user-developed spreadsheets, databases and applications that create an inadequate audit trail or management oversight.
Discover more here.