Weekly news up to 26/04/2024
Issue #32
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
New York Stock Exchange Explores 24/7 Trading
📰Newsflash
📈Buyside
According to a survey from The TRADE and Optiver, more than 25% of buyside firms are currently sending more than 10% of their flow directly to market makers. Prior to the introduction of MiFID II in 2018, such trading activity would have been unheard of. The increased used of market makers by the buyside can be attributed to lower European equity volumes and liquidity, causing many firms to establish bilateral relationships with market makers. In addition, The TRADE and Optiver found a 35 per cent decline in the volume of trading on displayed markets, with dark pools and off-exchange markets becoming increasingly popular. Given volume and liquidity constraints, it appears some firms are being left with little option but to try new ways of executing trade orders.
The Bank of England (BoE) is pushing for better risk management in the private equity sector after conducting ongoing reviews into the industry since the end of 2023. The BoE has found that only a small number of banks are able to identify and systematically aggregate or measure their risk exposures to the private equity sector, leaving the UK financial sector vulnerable to any potential systemic risks. The review could lead to tighter stress testing measures being implemented, along with increased board-level reporting obligations.
📉Sellside
JPMorgan opens Glasgow tech centre
JPMorgan Chase has opened a newly-built, sustainably-designed, multi-million pound office in Glasgow to house thousands of technology workers. The 270,000 square foot, 14 storey building will house JPMorgan's technology workforce in Glasgow. The US investment bank employees 2600 people in the city, which has housed one of its technology centres for 25 years.
Goldman Sachs offloads Marcus robo-advisor customers to Betterment
Goldman Sachs is continuing its retreat from the consumer banking sector, after announcing it is selling its retail banking automated investing service Marcus Invest to digital investment advisor Betterment. Goldman has been retreating from the consumer market, after selling off Marcus, exiting its credit card deal with Apple and selling its BNPL business Greensky. Betterment already claims to be the largest independent digital investment advisor in the US, with more than 850,000 customers and more than $45 billion in assets. The firm is only acquiring Marcus Invest accounts and assets under management; not any additional accounts, technology, employees, or operations.
✴️Digital transformation
Central banks embark on tokenisation project
The Bank of International Settlements is partnering with seven central banks to explore use cases for tokenisation in cross-border payments. The central banks - Bank of France (representing the Eurosystem), Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York - plan to work on the project, called Agora, in partnership with a large group of private financial firms convened by the Institute of International Finance. Specifically, the project will investigate how tokenised commercial bank deposits can be integrated with tokenised wholesale central bank money in a public-private core financial platform, mainly using smart contracts. The aim of the project is to overcome structural inefficiencies that plague cross-border payments today.
Is The New York Stock Exchange Going to Transition to 24/7 Trading?
The New York Stock Exchange (NYSE), the world's largest stock exchange by market capitalisation, is exploring the possibility of transitioning to a 24/7 trading model. This week, the NYSE’s data analytics team conducted and internal survey in order to gauge market participant’s interest in transitioning to a 24/7 trading model. Notably, the proposal considers extending trading into weekends, challenging the traditional Monday-to-Friday schedule, with the influence of cryptocurrencies now weighing heavily on financial markets.
📱Technology trends
Standard Chartered accelerates API adoption with launch of new Open Banking Marketplace
Standard Chartered today announced the launch of its new Open Banking Marketplace, a one-stop platform that enables both existing and prospective clients to discover, identify, and test application programming interfaces (APIs) that best meets their business objectives in a sandbox environment. The objective of the platform is to streamline business-to-bank collaboration and allow for a shorter discovery and implementation process when integrating prospective APIs. More than 100 APIs are available on Standard Chartered’s new platform.
Liquidnet unveils SuperBlock initiative to bolster block trading
Financial technology provider Liquidnet has launched a solution called SuperBlock matching, which allows traders to signal and participate in large or illiquid block trades with a single click. Liquidnet revealed that SuperBlock minimum trade sizes will vary by market and each stock’s market capitalisation, focused on assisting with the most difficult executions and orders. Ultimately, the solution makes it easier for firms to execute large and nuanced block trades, helping to improve market efficiency.
🧑⚖️Regulatory developments
Big banks face probe over NDAs in swaps, clearing businesses, Bloomberg reports
The Commodity Futures Trading Commission (CFTC) has reached out to a number of banks, including JPMorgan Chase, Bank of America and Citigroup to see if they have been preventing would-be whistleblowers from speaking out. CFTC is asking banks for non-disclosure agreements in their swaps and clearing businesses, and has also sought to obtain employment and customer agreements in those businesses. In January 2024, JPMorgan agreed to pay a $18 million civil penalty to settle charges it violated whistleblower protection rules.
CFTC Weighs Outright Ban for Derivatives Bets on US Election
US financial regulators are considering an outright ban on using derivatives to bet on US elections as part of a crackdown on so-called ‘event’ contracts. The Commodity Futures Trading Commission’s (CTFC) draft proposal would boost oversight of the contracts that have let people bet on real-world outcomes such as monetary policy, lunar landings and music awards. US elections are due to take place in November 2024.
📊Chart of the week
With nearly a month to go until the US transitions to a new ‘T+1’ securities trade settlement period, it is all hands to the pump for capital markets firms as they seek to meet the encroaching regulatory deadline. The new settlement period is instigating a huge operational and infrastructural shake-up for capital markets firms both in the US and overseas.
Above, GreySpark has identified some key considerations for in-scope firms ahead of the new settlement period. A prerequisite for firms in successfully transitioning and adjusting to the new cycle will be automation, in order to improve trade settlement efficiency and reduce the likelihood of errors in a more frenetic and smaller trade settlement window.
In particular, firms will need to ensure accuracy in their management of standing settlement instructions (SSIs), which are currently a major cause of settlement failures in capital markets. SSIs are a set of instructions that dictate how a trade should be settled, including the bank accounts that should be used, the currency that should be used for settlement, and other important details. In fact, The Depository Trust and Clearing Corporation has suggested to clients to adopt TradeSuite ID processing, which is being established as an industry best-practice. TradeSuite ID allows firms to affirm and monitor the affirmation status of their trades by providing each trade with a unique ID code that can be tracked and managed, while providing a time stamp of trade orders. In doing so, this provides full visibility and transparency of a firm’s trades, while also helping to assist firms in regulatory compliance reporting.
For more information on the upcoming T+1 trade settlement period in the US, click here.
🐤Tweet of the week
BlackRock, the world’s largest asset manager, recently marked the dawn of a new financial era after launching its first tokenised fund called BUIDL last month. Built on the Ethereum blockchain, the tokenised fund allows investors to purchase tokens representing shares in the fund, which invests in safe assets like US Treasury bills. It offers immediate settlement and enhanced liquidity.
This month, Circle, a financial technology firm and the issuer of the USDC stablecoin, announced a new functionality that would allow holders of the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) to transfer their shares to Circle for USDC. The tweet above highlights how this is a crucial step forward in not only BlackRock’s tokenisation journey, but the financial industry’s tokenisation journey. This is because it gives an early indication of how interoperability of tokenised assets will materialise, with this being an early hindrance to mass adoption. At the same time, it also provides a mechanism by which digital and tokenised assets can be converted ‘off-ramp’ with USDC being redeemable for US dollars on a one-to-one basis.
📄GreySpark insight
Here’s a snippet from our latest report, Trends in Private Markets 2024.
Both the appeal of potentially higher returns and portfolio diversification, as well as incentives for private companies to grow and diversify their investor bases, have driven growing desire among retail investors to be able to invest in private markets. The pool of mostly untapped capital is large: individual investors hold roughly 50% of the estimated $285 trillion of global AuM held by pension and mutual funds. Yet those same investors represent just 16% of AuM held by alternative investment funds.
Prominent publicly traded asset management firms have been leading the charge in retail recruitment initiatives. According to Bain & Company’s projections, institutional capital allocated to alternative investments is expected to grow by 8% annually over the next decade, while individual wealth invested in alternatives is expected to outpace this growth at 12% annually, albeit from a smaller initial base. When considered together, these sources should, at the very least, support a 9% annual growth in AuM through 2032.
This has increased the desire to attract more retail capital, and some of the industry’s largest funds have targeted further individual investor AuM: Blackstone believes that retail capital will increase from $200 billion to $500 billion, KKR anticipates that 30%-50% of new capital raised in the foreseeable future will be raised via private wealth channels, and Apollo is looking to raise $50 billion in retail capital by 2026.
Discover more here.