In the keynote panel on ‘Making Markets Better’ at the FIX EMEA conference, speakers debated the challenges facing liquidity and growth in Europe and the UK – how regulation can support innovation and encourage inward investment, and how that structure and outlook has changed over the years.
“However beautiful the strategy, it’s good to occasional look at the results,” said Winston Churchill – and this was the note on which FIX EMEA opened, with a discussion on how to improve current market structure.
Virginie Saade, head of government and regulatory policy EMEA at Citadel, joined ING’s Stephane Malrait, LSEG’s Jessica Morrison, BVI’s Rudolf Siebel and Jane Street’s Peter Whitaker to explore what has happened over the last few years to improve the competitiveness of the markets – and identify the key elements of innovation and cross-pollination between asset classes.
“There has been lots of work in the background to make things better,” said one panellist. “MiFID II was a big approach off the back of the financial crisis. It was all about creating more control, more constraints, more reporting – and that was a heavy cost. This new wave of regulations we’ve been working on for the last three years is almost the opposite. How can we make markets better, how can we make them smoother, increase transparency, create a consolidated tape, improve pre-trade transparency in the non-equities space. Collaboration between regulators, policy-makers and the industry has really improved. Ten years ago we were the bad guys, now we are the experts. That’s been a big change, and very positive.”
Innovation around fintechs is crucial, with regulatory sandboxes playing a key part in the drive to improve the primary market and increase liquidity in the economy. “Banks are there to finance the economy,” said one speaker. “If we want to grow, we need to find ways to do that better. More IPOs, more listings, people trading more. In the US, Bloomberg TV is playing in dentists’ waiting rooms, because people care about their portfolios. That doesn’t happen in Europe, we aren’t interested in managing our own pensions, we delegate that. We need to invest in the equities and bond markets to prepare for the future.”
Digital assets and the increased interest in using blockchain technology was another focus, with one speaker noting that in a significant change, more investment is now going directly into digital assets as well as into the underlying technology.
However, there is much still to be done. We still need more structure on ESG funds to make the sales part work from a data perspective. “On the ESG side, we have over-regulated, it’s too detailed, it’s too much reporting, and no one understands what it means. Now we have this revolution, the war in Ukraine, uncertainty – we have to reset,” urged one speaker.
There was also a distinction made between the US and European model when it comes to market data and transparency. “We think it’s best to have a wide access to more information,” said a panellist. “The UK and Europe are now looking to move to more real-time models, albeit with some deferrals, and we think that will be positive. This also promotes innovation, new entrants, different types of market protocols, etc.”
The sticky subject of consolidated tape was broached, with speakers agreeing that Europe is by nature complicated and fragmented and it is for regulation to bring that together. “When we trade ETFs and we have investors from Asia, they don’t understand the complications. The CT will make the visibility of liquidity higher and that will benefit the industry. It shows that regulation can help promote innovation as well as bringing in outside investment,” said a panellist.
Finally, in terms of post-trade transparency, one speaker noted that the UK suffers from lowest levels of continuous trading across the four main platforms, with significant levels of OTC. The upcoming rule change in April about what’s addressable and not within the OTC landscape should make a big difference, but concerns were raised that right now, trades don’t have a flag to indicate whether they are retail or which makes it difficult to support retail volumes. “How can you support retail volumes when you can’t measure them?” asked one.
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