Weekly news up to 05/04/2024
Issue #29
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
UK taskforce recommends T+1 settlement by the end of 2027
📰Newsflash
📈Buyside
Broadridge Financial Solutions’ subsidiary LTX has integrated with TS Imagine’s fixed income execution management system, TradeSmart Fixed Income. The integration will provide buy-side clients with improved pre-trade transparency, price discovery and improved access to aggregated liquidity among existing workflows. The integration will also provide LTX order staging for TradeSmart Fixed Income users, as well as the ability to submit indications of interest (IOIs) into the LTX Liquidity Cloud. The Liquidity Cloud is LTX’s network of sell-side axes and anonymous buy-side IOIs.
Asset managers embracing AI but need to go further
While almost all asset managers are already using artificial intelligence (AI) in their investment processes, only a handful are using the tech for more advanced tasks, according to a recent study of 150 investment managers. As many as 91% of asset managers are planning to use AI in their investment strategies or asset class research, although currently, use has been limited to simple tasks such as data analysis or idea generation. A much smaller number are relying on AI for more complex processes such as portfolio construction or rebalancing. Generally speaking, the core focus for AI in financial services firms has so far centred around labour-saving processes rather than decision making, although this could change as AI becomes more advanced and further integrates into workflows.
📉Sellside
European Banks Grapple with SEPA Instant Payment Deadline: 58% Deem Unrealistic
Roughly one-third of European banks are not confident about meeting the EU’s 2025 instant payment deadline, with the majority believing the timelines imposed by the new regulation are “unrealistic”. EU banks are currently transitioning toward an instant payment environment following regulatory approvals. Instant payments accelerate the movement of money between businesses and individuals, increasing the number of payments per second. The transition is creating several structural challenges for European banks, including adapting customers' channels, implementing the provisions for KYC and sanctions screening, scaling throughput, creating value-added offerings, and ensuring 24/7 availability. Specifically, 58% of 200 senior payment professionals surveyed find the timelines ‘unrealistic.’ On average, European banks expect to invest between €1 million and €3 million in new technology following the measures.
Central banks explore tokenisation of cross-border payments
Seven central banks are currently working with the Bank for International Settlements to explore tokenisation of cross-border payments. Specifically, the project will explore how tokenisation of wholesale central bank money and commercial bank deposits on programmable platforms can improve efficiency in the global monetary system, while also assessing how this integration can take place. The Bank of France, Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York are all participating in the project. The project could go a long way in providing a new common payment infrastructure that combines numerous payment systems, accounting ledgers and data registries into one unified, interoperable system using the benefits of tokenisation.
✴️Digital transformation
Bank of England and FCA to launch joint Digital Securities Sandbox
The Bank of England (BoE) and the UK Financial Conduct Authority (FCA) are working together to operate a new Digital Securities Sandbox (DSS) – a regime that will allow firms to use emerging technology in the issuance, trading and settlement of securities. The DSS is intended to last for five years, after which regulators will be better informed to design a permanent, technology-friendly regime for the securities market. Examples of financial instruments that could be issued and traded in the DSS include equities, corporate and government bonds, and money market instruments. Financial firms can apply to the DSS, with successful applicants operating under a set of rules and regulations outlined by the BoE and FCA. By adopting emerging technologies such as distributed ledgers, post trade processes and trade executions will likely become faster and cheaper, leading to cost savings among financial market participants such as pension funds, investment firms and banks.
Bloomberg wins contracts to supply European Central Bank electronic trading platforms
Bloomberg has won a contract to supply the European Central Bank with trade platforms for Euro, US Dollar (USD) and Japanese Yen (JPY)-denominated government bonds and USD and JPY interest rate swaps, as well as USD and JPY denominated Futures contracts. Trades will take place on Bloomberg’s Netherlands based MTF, BTFE and futures trading will be supported by Bloomberg’s multi-asset execution management system, Bloomberg Tradebook ISV and EMSX.
📱Technology trends
Euroclear invests in blockchain company
Euroclear has acquired a stake European blockchain-based fund marketplace Iznes. The move highlights how key market infrastructure providers such as Euroclear are exploring blockchain and seeking to stay relevant to the future, amid the growing integration of digital assets in traditional finance systems. The transaction adds to Euroclear's other investments in the blockchain and digital technology market. These include the 2021 acquisition of digital fund distribution platform MFEX and last year's takeover of private funds digital marketplace Goji.
Tradeweb wins bid to supply electronic trading platforms to European Central Bank
Tradeweb has won a bid to supply electronic trading platforms (ETP) to the European Central Bank for the next four years. As part of the deal, the fixed income platform provider will provide ETPs for the central bank and other Eurosystem National Central Banks (NCBs). Tradeweb’s ETPs will cover the trading of a range of securities, including EUR-denominated bonds, US Treasuries, Japanese government bonds and JPY-denominated interest rate swaps. The four-year contract has the option to extend for a further two years.
🧑⚖️Regulatory developments
US and UK will work together to test AI models for safety threats
The US and UK have agreed to collaborate in monitoring advanced AI models for safety risks. The deal was signed in Washington by the UK technology secretary Michelle Donelan and the US commerce secretary. The agreement will see an exchange of research expertise between the UK’s newly established AI Safety Institute and the US equivalent, which is yet to begin operating. The aim of the agreement is to mitigate the risks of AI, including how to independently evaluate private AI models from key organisations.
UK taskforce recommends T+1 settlement by the end of 2027 in two-phase approach
The UK government has given the greenlight to move to a T+1 settlement cycle following a report from the Accelerated Settlement Taskforce (AST). Specifically, the AST has recommended a two-phased approach to shortening the settlement cycle beginning with operational changes in 2025 and a full transition by the end of 2027. The taskforce also recommended a Technical Group should be established, comprising operational and market experts to work through the details including how changes can be best implemented to enable a smooth transition to T+1. This feels like an inevitable next step for the UK, given that the US is transitioning to a T+1 securities trade settlement cycle later this year.
📊Chart of the week
Source: GreySpark analysis
The model above shows GreySpark’s classification of the leading technology vendor products and solutions driving the capital markets industry’s digital infrastructure of today. This infrastructure can largely be split across four specific areas:
Managed Co-location – Trading applications (OMS, EMS, smart-order router and execution algos), direct market access (DMA) solutions, raw market data providers, computing platforms, information security (Info Sec) solutions, network providers, colocation providers and global extranet providers;
Market Data – Trading applications (market-making systems and principal trading systems), real-time normalised market data and historical data providers;
Managed Applications – Front-to-back applications, Info Sec solutions, Cloud hosting (public / private / hybrid) providers and connectivity providers; and
Managed Platforms – Trading applications support service providers, business applications support service providers, desktop applications support service providers, on-premises computing, hosted computing, Cloud computing, desktop computing, Info Sec solutions, and LAN, WAN, remote access and voice-over-Internet Protocol (VoIP) and VC technology.
If you would like to find out more, why not check out our latest research report, which you can find here.
🐤Tweet of the week
📄GreySpark insight
In the financial industry, having the right technology and IT solutions is critical for success. However, simply having these tools is not enough – nurturing a solid partnership with an experienced and reliable IT service provider is also essential. Such a partnership can provide trading firms with several key benefits:
Access to Expertise: IT service providers have extensive knowledge and experience in developing, implementing, and managing cutting-edge technology solutions tailored to the specific needs of trading firms. This expertise can help firms navigate complex market landscapes, anticipate future challenges, and stay ahead of the curve.
Scalability and Flexibility: A strong IT partner can help trading firms scale their operations and adapt to changing market conditions. This is crucial in an industry where quickly adjusting strategies, technology, and resources can make all the difference.
Cost Effectiveness: Partnering with an IT service provider can be more cost-effective than building and maintaining an in-house IT team. This allows trading firms to focus on their core business activities while still benefiting from advanced technology solutions.
Continuous Improvement: An IT partner can help trading firms continuously improve their technology infrastructure, processes, and strategies. This includes keeping up with the latest industry trends and advancements and regularly assessing and optimising systems to ensure they remain competitive and efficient.
Discover more here.