2024 is shaping up to be another busy year for buyside trading desks with expected volatility alongside the commencement of interest rate cuts by major Western central banks and the U.S. election, the adoption of new AI models into trading processes and the go-live of long-anticipated regulatory changes.
The financial market in 2023 was focused on peak interest rate levels in the central bank rate hike cycle that commenced in early 2021 and ended the low-interest rate regime of the previous decade. Buyside trading desks had to adapt hedging strategies as volatilities rose and the USD became a high-yielding currency. Collateralization terms and cash margins became a focus point because holding cash suddenly came with high opportunity costs if not properly managed.
a. 2024 will see central bank rate cuts to ‘normalize’ toward a yet to be established new neutral rate. The timing and speed of the cuts, plus discussions about central bank balance sheet normalization (i.e., quantitative tightening), will dominate the trading narratives.
"2024 will see central bank rate cuts to ‘normalize’ toward a yet to be established new neutral rate."
b. November 2024 will bring the most anticipated volatility event of the year when the U.S. election will bring back memories of the fierce market action of 2016 and 2020.
AI capabilities took a great leap forward in late 2022 with the launch of OpenAI’s ChatGPT.Large tech firms and AI start-upslaunched numerous competing models since then, and the financial industry is building new AI-based features to optimize the FX trade execution process. Buyside firms can work with their brokers and technology providers to capture efficiency gains in the areas of:
a. EMS Order Staging:New AI models allow for more efficient staging of orders and creation of execution plans by incorporating a vast array of data on current market conditions and micro-structure, historical patterns and seasonality and upcoming market events. The software can incorporate day-specific trader inputs and general standing guidelines to create the optimal order set up for execution.
b. EMS Order Execution:New AI models allow direct chat- or voice-based communication between the EMS and the execution trader. The software directly interacts with the trader and can, for example, flag up unusual market patternsalongside potential options to opportunistically adapt the running orders. The service experience for the buyside traderislikereceiving high-touch sales coverage, butat the cost and availability of a low-touch offering.
2024 brings regulatory changes that impacttrading and post-trade processes:
a. 28th May 2024: The U.S., Canada and Mexico are adopting T+1 settlement for transactions in cash equities, corporate debt, and unit investment trusts. Trade matching, allocations and prime brokerage trade file submissions must happen on T+0 before end-of-day deadlines. Related FX spot conversions must also get booked in the late New York afternoon session with a value date tomorrow forfunds trading securities in non-native currencies, which shortens the available time window and pushes more transaction volume into a traditionally less liquid time for FX markets.
b. 29th April 2024: EU EMIR Refit makes changes to the reporting format, reporting fields, unique product identifier codes, unique trade identifier, position level reporting and notification obligations. The impacted reporting entities must be working with their respective counterparties to adapt to the new requirements.
c. 30th September 2024:UK EMIR Refit represents the first substantive divergence from EU EMIR, which was originally “onshored” into English law following Brexit. The different implementation dates mean that entities falling under both reporting regimes must temporarily run the old and new reporting in parallel.
In summary, 2024 shapes up to offer plenty of work tocapture opportunities in volatile markets, raise trading desk efficiency and complete the necessary regula
