Weekly news up to 24/05/2024
Issue #35
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
SEC paves way for Ethereum ETFs in boost for crypto
📰Newsflash
📈Buyside
Private equity investment in cybersecurity sector soars amid shake-up
Private equity and venture capital investments in cybersecurity almost doubled during the year to 5 May, 2024, with a total transaction value of $8.51 billion against $4.46 billion in the same period in 2023. For the year to 5 May, 2024, total investments stood at $6.65 billion, exceeding the combined first two quarters of 2023. The rapid digitisation of capital markets infrastructure is bringing a greater need for more advanced cybersecurity technologies, with cyberattacks becoming increasingly sophisticated. In particular, the greater adoption of cloud infrastructure is helping to fuel this trend, along with more stringent regulatory requirements such as the Digital Operational Resilience Act (DORA).
SEC paves way for Ethereum ETFs in boost for crypto
On 23 May 2024, the US Securities and Exchange Commission (SEC) approved the sale of spot Ether exchange-traded funds (ETFs) in the US. Ether is the native token to the Ethereum blockchain, which by market capitalisation, is the second largest cryptoasset. The first round of approvals for the potential launch of eight ETFs was given to several asset managers, including BlackRock, Fidelity and Invesco. A second round of approvals must be given by the SEC before the products can officially launch, although the date as to when this may take place is unknown. Nevertheless, following the approval of eleven spot Bitcoin ETFs in the US earlier this year, institutional adoption and interest toward cryptoassets is undoubtedly growing.
📉Sellside
Trader’s error sees Citigroup Global Markets face £61 million penalty from UK regulators
Citigroup Global Markets Limited (CGML) has been fined £61.6 million by UK regulators for historic failings in its trading systems and controls. On 2 May 2022, a CGML trader sought to sell a basket of equities worth $58 million. When entering the basket into an order management system, the trader erroneously created an order worth $444 billion, over 760,000% of the original intended value. Although CGML’s controls blocked some of this order from happening, $1.4bn of equities were sold across European exchanges, before the trader cancelled the order. This coincided with a material short-term drop in some European indices which lasted a few minutes. This incident serves a stark reminder about the importance of having trading controls in place.
JPMorgan to give AI training to all new hires
JPMorgan is to give AI training to all new employees, as the bank seeks to cement its reputation as an AI powerhouse. JPMorgan now has more than 2000 AI and machine learning experts and data scientists. This month, the bank announced that it was using OpenAI’s GPT-4 model for a range of thematic investment baskets, identifying keywords associated with an investment theme before inserting them into a natural language processing model. JPMorgan employs nearly half of the talent pool available across the Top 10 banks for AI research.
✴️Digital transformation
Standard Chartered brings blockchain to payments with Partior
Standard Chartered has become the first Euro settlement bank to go live on Partior, which is a provider of global, unified ledger market infrastructure. The bank has successfully completed a Euro-denominated cross-border transaction on the Partior network, facilitating payments between Hong Kong and Singapore for client transactions with Siemens AG and iFAST Financial Pte Ltd. This is part of Standard Chartered’s plans to integrate blockchain innovations directly into its payment systems, and provide 24/7, real-time flows at scale for corporates and financial institutions.
BBVA inks OpenAI deal to bring ChatGPT to employees
Spanish banking group BBVA is stepping up its use of artificial intelligence, signing a deal with OpenAI to start rolling out ChatGPT to thousands of employees. The first European bank to forge an official alliance with OpenAI, BBVA has already begun deploying 3000 ChatGPT Enterprise licenses among employees in a bid to increase productivity and process efficiency, while stimulating innovation. OpenAI has also agreed to deliver training and provide the latest updates for its large language models.
📱Technology trends
Mastercard, Standard Chartered pilot tokenised deposit transaction
Standard Chartered Bank in Hong Kong has successfully completed a proof-of-concept project in collaboration with Mastercard, Mox Bank, and the government bond platform Libeara to explore the benefits of tokenised deposits for settling tokenised carbon credits. The pilot initiative was conducted within a supervisory sandbox and overseen by the Hong Kong Monetary Authority. Carbon credits are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases (GHGs). Using Mastercard’s multi token network infrastructure, Standard Chartered and Mox were able to carry out a real-time carbon credit transaction, with the credit successfully landing in the digital wallet of the Mox client.
OTC Markets to launch overnight US dollar trading
OTC Markets has announced plans to launch a new overnight US dollar trading offering in the coming months in a bid to expand accessibility to over-the-counter markets. Overnight trading takes place after market close and prior to the next day’s market open. Named OTC Overnight, the new offering will make OTC equity securities available for trading from Sundays through to Thursdays between 8 pm and 4 am EST. The new offering is due to launch in the second quarter of 2024 and will be available on the OTC Link NQB Alternative Trading System (ATS).
🧑⚖️Regulatory developments
ICE issued $10 million penalty by SEC while New York Stock Exchange and others are charged
Intercontinental Exchange (ICE) has agreed to pay a $10 million penalty related to a violation of its own internal cyber incident reporting procedure back in 2021. Specifically, the case relates to the fact that ICE experienced a system intrusion through a vulnerability in its VPN, which the exchange investigated immediately and found that malicious code had been inserted to remotely access the ICE corporate network. The SEC’s charge comes due to the fact that ICE personnel did not notify the legal and compliance officials at ICE’s subsidiaries of the incident for several days, and instead the SEC had to contact the parties in question as they assessed reports of similar cyber vulnerabilities.
FCA fines HSBC £6.2 million over treatment of customers in financial difficulty
The FCA has fined HSBC Bank £6.2 million for failures in its treatment of customers who were in arrears or experiencing financial difficulty. Between June 2017 and October 2018, HSBC failed to properly consider people’s circumstances when they had missed payments. The bank did not always conduct the right affordability assessments when entering arrangements with people to reduce or clear their arrears. On some occasions, it took disproportionate action when people fell behind with payments, which risked people getting into greater financial difficulty. The failings were caused by deficiencies in HSBC’s policies and procedures and the training of their staff, as well as inadequate measures to identify and address instances of unfair customer treatment.
📊Chart of the week
Globally, the asset management industry is enduring a turbulent period, with economic and geopolitical shocks such as the Russia-Ukraine war interrupting a fruitful period that had lasted for years. As the figure above from Zeb Consulting shows, in 2022, global assets under management shrank for the first time since 2018. In addition, in terms of market concentration, large market players are increasingly dominating more of the market. As you can see, the five largest market players generate around 65% of AUM growth, with this trend set to continue. In fact, there is an expectation that one in six asset management groups will disappear by 2027, with pressures on fees and the struggle to drive digital innovation threatening to put asset managers out of business or be bought out by bigger groups.
🐤Tweet of the week
📄GreySpark insight
With T+1 security trade settlement coming into force in the US next week, we thought now would be an opportune moment to remind you of our specialist report titled The Implications of Transition to T+1 Trade Settlement in the US. Here is a snippet of the report below:
The switch to T+1 trade settlement in the US is the culmination of progressive post-trade structural transformations that have been in play since the last decade of the twentieth century, and which were necessitated by the increasingly dynamic and technologically advanced capital markets landscape. Before the era of electronic trading, when physical stock certificates were delivered by mail, the Securities and Exchange Commission (SEC) allowed five business days for securities transactions to settle. Five days became three in 1993 as electronic trading started to gain traction which facilitated greater trading efficiencies and opportunities for quicker settlement. In 2017, the SEC further shortened the US trade settlement period to two days (T+2), which has remained in force since.
The new rule stipulates that all broker-dealer transactions of US securities that settle through the Depository Trust Company (DTC) globally must be settled between counterparties within one day of the transaction taking place. These counterparties could include domestic and international financial firms, such as investment managers, custodians and broker-dealers. The US securities in scope for the new trade settlement period include equities, corporate bonds, ADRs, unit investment trusts, mutual funds, exchange-traded funds, equity options and private-label mortgage-backed securities.
While the move to T+1 trade settlement in the US has been a long time coming, its implementation has been spurred by two watershed moments – the increased market volatility at the outbreak of the Covid pandemic in 2020, and the surging interest in meme stocks such as GameStop, which infamously saw a community of retail traders squeeze hedge funds out of their GameStop short positions in 2021, undermining market confidence. Collectively, both incidents exposed investors to counterparty risks that US policy makers believed could be reduced by shortening the securities trading settlement period.
Discover more here.