As we look ahead to 2025, what is the main challenge facing traders?
I think it’s similar to 2024 to some extent, the main challenges are going to be political and macroeconomic uncertainties and how that will impact traders’ trading strategy. In 2025 we could have a bit more clarity than we had in 2024, with the US election – a big topic – now being decided. But other things such as the war in Ukraine, and the situation in Gaza and Israel are still developing, so I think we are looking at a bit more certainty, but it’s still a market of unpredictability – a main challenge for traders.
Another point relates to more than just their trading activities, it’s more about how it’s going to impact their preparation for their long-term strategies. Looking at how predicted trends are panning out is more important than ever, for example increased focus more on emerging market markets and the nuance and technological needs are paramount.
Financial products are different in EM than in developed markets where products are more electronic, with more high frequency trading, etc. It’s all highly dependent on macroeconomics and political uncertainty.
What can we expect to be prioritised on the regulatory front this year?
There are a few big regulatory changes which are probably not going to go live in 2025, but will need technological and infrastructure-related preparation and change before 2026 and 2027.
The first one is the move to T+1 settlement in the UK and Europe. We already know the date – 11 October 2027 – less than three years away and people will need time to prepare, which means that the work should starts now.
The second big one is the creation of the consolidated tape in the UK and in Europe for bonds, and then equities followed by the derivative products. People will need to start getting ready to look at the data, connect to the CTP in Europe and in the UK and they will need to reassess how it will impact their business model/trading activities. The first deadlines are coming in next quarter so it’s something important to put in the roadmap.
The third topic is artificial intelligence, with the implementation of the AI Act in Europe and potentially similar initiative happening in the UK means that AI is going to remain a big topic impacting the financial market industry. I would advise watching what the regulators are going to implement and also prepare your trading activity for that impact.
Number four that I’d put on my list is the current consultation by IOSCO on pre-hedging activities cross-asset. This one will take time before it goes to national regulators so probably another year or so away, but I think if you don’t engage with these early consultations it may impact your trading activities.
Overall, both the UK and Europe also have a competitive and growth agenda and it is going to be a necessary focus on simplification of existing regulation – to streamline processes and make it easier for market participants.
When it comes to EU and UK regulators, are these converging or diverging? What’s the outlook for 2025 and beyond?
It really depends on the topics. In the last two to three years, the two sides couldn’t speak too much to each other until 2024, where this started to change. A good example is the T+1 reduction of settlement cycle for securities markets – where there needs very strong alignment between UK and Europe for the European time zone to be able to converge on the date of application. So convergence makes a lot of sense as the industry pushes for it and conversations are particularly important when it comes to project implementation.
Another area where convergence is needed is potentially AI regulation. There will be differences due to the fact that Europe is more prescriptive into the way they make regulation, where the UK is going to focus on principle-based regulation. We can already see where Europe is heading with their AI act which was quite prescriptive.
In addition, digital assets could be something similar where the industry will need a global approach. Better alignment is a positive approach.
For this growth of competitive agendas into the UK and in Europe, it’s key to make sure that there are consultations on both sides and market participants can take a very key role there, through their trading associations, or through talking directly with regulators. When you look at an asset manager, pension fund, or bank, most of them who are in the UK also trade in Europe, so that’s why it’s such an important topic to discuss.
How is the role of technology changing as market structure develops?
I think it’s even more important than it has been in the past. If you look at the last 20 years, where the traders could add a much more important role than the technologies that was supporting them, now it’s almost the opposite – you can see the rise of technology in the way that traders develop new trading activities very clearly and market structure is an important part of that.
For me there are three key levels where market structure is vital.
Firstly, the technology focus – a company needs to have a very strong technological foundation, a sound system which is solid but flexible. Some companies are still playing catch up when it comes to their technology architecture level and it’s only when you have some technologies like that in place that you can move to the second level, the data.
It’s increasingly important in financial market to become a data-led organisation, and it is about usage of internal data versus external data, and how to use your own data to develop clear and unique insights. That’s why the consolidated tape in the UK and Europe will be a very big added value for the market.
The third layer, which I see is how AI can use this data layer and people are starting to realise the importance of the potential impact of AI in their business model. If you don’t do it, others will take the lead. We already see that in the very liquid instruments like equities, but it will develop in other asset classes like bonds.
Using technology, data and the intelligence layer will increase your productivity – which is where you already have developments like algorithmic trading. In that instance, of course, it is more developed in some asset classes than others, but development is these capabilities is happening. Then comes the artificial intelligence aspect, how the newest innovations in the future can pragmatically help traders and market makers. Essentially all are ‘efficiency tools’.
Suppose that you have a good technology foundation, a good data foundation, the focus must then become how do you make sure that your team are extremely efficient going forward. That’s the key to making the most of technology as market structure continues to change.
Malrait is set to join Etrading Software as chair of its industry stakeholder group (ISG) on the consolidated tape (CT) on 20 January, as revealed by The TRADE on Monday 13 January.