So found the inaugural Global Trading Sentiment Survey 2024, which gauged the concerns of a wide spread of market participants during last quarter’s TradeTech in Paris. Laurie McAughtry reports.
With a 62% buy-side response (along with 23% sell-side and a handful of vendors and venues), the survey gathered a strong understanding of the current challenges and opportunities facing the European market in 2024-25.
Over-regulation was cited as the single biggest barrier to effective liquidity formation, with 34% of responses, while the decline on lit/on-exchange trading came a close second with 32%. One venue complained of: “Over-regulation, with too small tick sizes, volume caps, and too much ELP high frequency trading driving institutional flows to move to dark and many small execution sizes. Driving way too much liquidity away from the price forming lit books – which again are to secure reference prices for both best ex, etc.”
“Lack of a consolidated approach to regulation for the whole region,” was another worry raised by one buy-sider in the comments.
Other issues raised included access to market data (11%), and a lack of transparency (9%). Interestingly, despite the dramatic headlines around the IPO exodus, just 2% pointed to primary market tightening as a key concern – while the issue of research rebundling was ignored altogether.
Numerous buy-side respondents wrote in the comments that market fragmentation was a worry for them, while another noted the “rise of passive flows and less intraday volume”. Exchange fees and information leakage were noted as other buy-side concerns.
A sell-side voice raised the issue of “differences in trading costs at different venues”, and another commented on “excessive cost for venue connectivity”. One response complained: “Too many markets, too many order types, way too much choice.”
Almost half (48%) of respondents warned that the current liquidity squeeze was impacting their trading costs, while 23% said it was limiting their ability to invest. Nine percent said it was affecting their client relationships, while around 7% said it was creating a mismatch between cash and asset flows. “Small caps are suffering badly,” said one sell-side respondent. However, not everyone is being affected negatively. “It’s increasing business as I help my clients look for liquidity,” noted a buy-side consultant. “We are growing,” revealed another venue.
Tech investment is expected to be the biggest cost base of the coming year, cited by 38% – while automation is the next notable expense with 23%. Talent remains (as always) a top priority with 19% expecting it to be a key cost element – but interestingly, T+1 compliance came relatively low down the list with just 11% noting it as a cost concern.
Looking to the future, however, the market was firm in its belief that a consolidated tape would be a positive development: with 47% citing it as the single thing that could revolutionise liquidity in Europe. Retail involvement and less regulation also came high on the list, but dark pools were of less interest. A trade association suggested that “consolidation of post-trade” could help, while a sell-side respondent (perhaps unsurprisingly) urged for more “internal sell-side solutions”.
Key themes for this year included trading technology (cited by 68%), AI (55%), automation (48%), liquidity formation (41%), data (25%) and T+1 (25%).
Other areas of interest this year included “competitor intelligence,” “algo evaluation,” “algo efficiency,” “TCA usage,” “new liquidity product offerings,” and “trading venue innovation.”
And when it came to the reason people attended TradeTech, the final answer was of course: “a free lunch”.
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