Weekly news up to 22/03/2024
Issue #28
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
BlackRock claims tokenisation first
📰Newsflash
📈Buyside
Goldman Sachs AM set to leverage BNY Mellon’s buy-side trading solution
BNY Mellon is set to offer its buyside trading solution to Goldman Sachs Asset Management. As part of the agreement, BNY Mellon is supporting Goldman Sachs in delivering global trade execution services in EMEA, the US and APAC markets across fixed income, FX, derivatives and ETFs. Currently, Goldman Sachs is seeking to expand the reach of its outsourced trading offering. Outsourced trading is when a firm provides trading services such as trade execution, research and middle office activities to other firms such as investment managers and hedge funds.
BlackRock claims tokenisation first
BlackRock’s $10 trillion tokenisation vision has officially started, following the launch of its first tokenised fund on a public blockchain. In partnership with Coinbase, BlackRock has launched The BlackRock USD Institutional Digital Liquidity fund, issued on the Ethereum blockchain. The fund is designed to offer US dollar yields through tokenisation through combining assets such as US Treasuries with blockchain technology. The launch comes on the back of BlackRock's first spot Bitcoin ETF, released in February 2024, and had since gathered around $15bn in assets from investors.
📉Sellside
Saudi Exchange welcomes Merrill Lynch to growing list of market makers
Merrill Lynch has become the latest market maker to be added to the Saudi Exchange, with the addition marking the fourth market maker to be onboarded since July 2023. At the same time, Merrill Lynch has become the first international market maker to conduct market making activities on Saudi equities. This move from Merrill Lynch highlights the growing interest toward frontier markets, such as Saudi Arabia, as their economies continue to undergo diversification. Elsewhere, for the first time, single stock options (SSOs) contracts at Saudi Exchange became available to trade in 27 November 2024.
Barclays and Citi reportedly prepare for investment bank job cuts amid dealmaking slump
Barclays and Citigroup are reportedly preparing to cut jobs in their investment banking divisions as they industry continues to grapple with headwinds including a slowdown in dealmaking. Data from Bain showed the value of M&A globally dropped 36 per cent in 2023 to a decade low. As yet, it is not known exactly how many job cuts will be made. Citigroup already announced that it would be cutting roughly 20,000 jobs over the next two years in January 2024, with more cuts now expected.
✴️Digital transformation
Borse Dubai Plans to Sell $1.6 Billion of Its Nasdaq Stake
Nasdaq Inc.’s biggest shareholder, Borse Dubai, is selling around one third of its shares in the exchange at $59 each, which would raise as much as $1.6 billion. Borse Dubai would still own more than 10 per cent of Nasdaq’s shares following the deal. According to Borse Dubai chief executive Essa Kazim, the deal is being conducted to ‘enhance the capital structure and liquidity within the Borse Dubai Group.’ Following the announcement of the deal, shares of Nasdaq fell three per cent in intra-day trading.
Central banks use AI to assess climate-related risks
This week, The Bank for International Settlements, a forum for central banks, the Bank of Spain, Germany's Bundesbank and the European Central Bank broke new ground by using artificial intelligence to collect data for assessing climate-related financial risks, just as the volume of disclosures from banks is set to rise amid tightening regulatory demands. Their experimental Gaia AI project was used to analyse company disclosures on carbon emissions, green bond issuance and voluntary net-zero commitments. Gaia uses language learning models to do this and could go a long way in providing an efficient, collective source of climate-risk related data and KPIs. The absence of a single reporting ESG standard currently alludes regulators, with a patchwork of public information spread across text, tables and footnotes in annual reports. Gaia is set to change this narrative, opening up the possibility of climate risk analysis at a scale that was previously unimaginable.
📱Technology trends
Robinhood goes live across the UK
Stock market investment app has officially gone ‘live’ in the UK. At launch, Robinhood will offer trading without foreign exchange (FX) fees, trading outside of market hours and no account minimum thresholds. Users can also build a portfolio for as little as $1. Robinhood is challenging existing market paradigms, giving the possibility of round the clock trading and improving market inclusivity by offering low investment barriers. Robinhood marked the launch in the UK with the erection of an eight-foot-tall Robin Hood statue firing an arrow in the direction of the Bank of England.
Global Commodity Trading Profits Topped $100 Billion for Second-Best Year Ever
The commodity trading industry recorded its second-best year ever in terms of profits, banking over $100 billion. Recent geopolitical events largely fuelled the bumper 2023, with fuel and energy prices remaining stubbornly high due to the Russia-Ukraine war. Renewable energies are also receiving increased demand with several economies, globally, in the midst of green energy initiatives.
🧑⚖️Regulatory developments
Hedge fund industry groups sue US SEC over Treasury market dealer rule
Trade groups representing the private fund management industry sued the U.S. Securities and Exchange Commission (SEC) this week over a rule requiring firms that deal in government bonds and other securities to register as broker-dealers. The SEC adopted the rule last month to enforce stricter oversight and risk management controls on proprietary traders and buyside firms, including hedge funds, which have become important sources of liquidity in the U.S. Treasury market. However, the new rule has created uncertainty as to whether market participants need to comply with the new regulatory framework. The trade groups involved in the suing allege the actions of the SEC violate the Administrative Procedure Act, a federal law which requires regulators to act within their authority.
What is ‘AI washing?’ Companies pay $400K to SEC for inflated claims
You may have heard the term ‘greenwashing’ being used in the ESG sector. This is when a company conveys false or misleading information about how environmentally sound their products are. Now, AI has coined its very own version. This week, the SEC charged two companies for falsely exaggerating their use of artificial intelligence in their products, marking one of the first-ever enforcement actions against ‘AI washing.’ Delphia and Global Predictions were made to settle charges with the SEC, paying civil penalties of $225,000 and $175,000, respectively. Delphia claimed its AI solution could ‘predict which companies and trends are about to make it big and invest in them before everyone else,’ which the SEC says was inaccurate to the company’s actual AI capabilities. Global Predictions called itself the ‘first regulated AI financial advisor’ and said its platform provided “[e]xpert AI-driven forecasts,’ statements which were also called out as false by the SEC. Given the proliferating AI trend in capital markets at the moment, AI washing is something that financial firms should consider going forward.
📊Chart of the week
This month, the Basel Committee on Banking Supervision (BCBS) published the latest Basel III monitoring report, which gathered cryptoasset data on 177 banks globally. Of those 177 banks, 28 banks disclosed cryptoasset exposures for the six months to 30 June 2023. Digital assets under custody rose 79% to €4.4 billion across all banks in the six months to 30 June 2023, in comparison to the previous six months.
American banks are largely absent from the cryptoasset custody sector at the moment, with just €11 million under custody across 11 banks. This can largely be attributed to the SEC accounting rule (SAB 121) that prohibits US banks from providing digital asset custody. This month, a Congressional Committee rejected the SEC rule blocking bank digital asset custody as it seeks to further integrate digital assets into the capital markets industry, which could suggest that changes are on the horizon.
European banks currently dominate digital asset custody, with €3.7 billion held in the coffers, most of which are spot crypto-assets. Two banks in the ‘rest of the world’ provide custody for €665 million, also for spot crypto-assets.
Regarding prudential exposures — which refers to banks holding crypto or tokenised securities on their balance sheets — the figures total €1.5 billion across all banks globally. Two-thirds of this is in Europe, with the majority of it in spot crypto, followed by tokenised assets.
🐤Tweet of the week
The tokenised ‘revolution’ has officially started…
📄GreySpark insight
Digital twins are increasingly becoming an integral part of financial firms’ operational resilience frameworks. As digital transformation of the financial sector accelerates, the exposure of FIs to the risk of a major disruption if technology fails, such as a deliberate cyber attack or an ICT system flaw or breakdown, naturally increases. Digital twins are dynamic and are generally able to depict more complex business system scenarios using real-time data, thus providing financial firms with robust scenario testing frameworks. According to MarketsandMarkets, digital twin technology in the financial services sector is set to be worth USD 0.5 billion by 2028.
Increasing the robustness of the operational resilience in the financial sector has undoubtedly become one of the top priorities for regulators this decade, resulting in regulatory frameworks such as the Digital Operational Resilience Act (DORA) and the UK’s BoE, PRA and FCA Operational Resilience. However, these requirements have ultimately exposed inadequacies and rigidities in traditional scenario testing systems, especially from a resource and data standpoint, putting firms at risk of not only future operational disruption, but also of regulatory retribution.
A digital twin helps to address these challenges for in-scope firms by providing a flexible, universal and entirely realistic scenario testing framework, representing an exciting new frontier for firms seeking to gain greater insight into their operations, and crucially, maintain regulatory compliance.
Discover more here.