The continued phase-in of Basel III for US banks, a raging debate about radical new equity brokerage rules in Europe, new bond trading platforms, and the search for a real fix to the foreign exchange (FX) fixing scandals are among the trends that will impact the structure of global financial markets in 2015 and beyond, says Greenwich Associates.
In its newly-published report, entitled
‘15 for ’15: Top Trends to Watch in 2015,’
the firm identifies shifts in regulations, market practice and technology with the potential to change the way investors and the financial firms that service them do business. In addition to an expected move by the US Federal Reserve to increase interest rates and a subsequent pick-up in volatility, the list includes the following issues:
More Basel III:
US banks will finally get a real taste of Basel III with the required disclosure of supplementary leverage ratios (SLR) – the US interpretation of leverage ratio requirements defined by Basel III. “This new disclosure requirement will finally give the market a more apples to apples comparison of bank leverage,” says Kevin McPartland, head of market structure research at Greenwich Associates. “As the last few years have taught us, disclosure brings with it questions, and questions often lead to change.”
Bond Market Evolution, not Revolution:
Growth in corporate bond e-trading and further adoption of trading protocols that go beyond traditional request for quotation (RFQ) will come in 2015 but a big bang market structure change is not expected. Unless a major market malfunction occurs, Greenwich Associates does not expect any major regulatory moves related to bond trading either. While the dynamics are different, client execution habits for trading US Treasuries are expected to be increasingly self-driven.
The unbundling debate in Europe makes regulatory scrutiny of the equity markets in the US look like child’s play, the firm comments. The European Securities and Markets Authority (ESMA) and the UK’s Financial Conduct Authority (FCA) have proposed rules that would require asset managers across Europe to use their own money rather than individual portfolios to pay for research and advisory services – including corporate access. “Expect this debate to rage throughout 2015,” the firm adds.
The Fight to Regulate FX:
The real question to emerge from the 2014 FX fixing scandal is why, in a market with over 80% of volume executed electronically, is a model developed decades ago still used to set the ‘official’ price. It is not clear if the regulators will move fast enough or hard enough on the industry to drive real change to this process in 2015. The spotlight on FX derivative markets will also brighten as US regulators determine how Dodd-Frank swaps rules apply.
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