2013 Offers Both Familiar and Fresh Challenges

Naturally, regulation is still the hot-button topic. Swap data repositories in the US began publishing pricing and transaction information from New Year's Eve, and most of the major banks have provisionally registered as swap dealers, under Commodity Futures Trading Commission (CFTC) rules. This year, the Securities and Exchange Commission (SEC) is going to have to power through its rulemaking to catch up with its sister agency, while chatter of merging the two continues to hum away in the background. In Europe, further moves on derivatives reform are likely, while the Target2-Securities (T2S) project, already weakened by the lack of UK participation, is most likely going to have to revisit its operating cost model again.

Settlement times, of course, will continue to be conversant. The discussion is starting again in the US following studies on the topic, and a need to come into line with the rest of the world, particularly Europe, where T+2 is mandated by the Central Securities Depository Regulation (CSD Reg).

Technology, of course, will continue to be both a facilitator of business and a challenge to it. We may not see the rampant reduction in trading times of recent years, with many people starting to postulate that high-frequency trading (HFT) has reached, if not a nadir, then a plateau of sorts. However, connectivity and the use of multi-asset strategies, across multiple venues, will be important. Moreover, 2013 will likely become the year of analytics, with in-memory technologies becoming increasingly prevalent and sophisticated, and more intelligent algorithmic strategies seeking returns through a cerebral use of data.

Cloud will continue to make its inroads, having become a quietly enlarged technology over the past year. As a recent contributed article in Waters noted, the burgeoning costs of retaining separate exchange licenses and technologies, compute power for increasing volumes of data and other areas are pushing hosted services into the front office, where previously none dared to tread.

Shrinking the Pool
Vendor consolidation, and indeed, institutional consolidation are likely to be of import. NYSE/ICE's sudden announcement just before Christmas kick started it, but the fact of the matter is that there are a lot of fish in a small pond that's only shrinking. I remember having several discussions with people about this last year, and the major acquisitions are beginning to seep through─Redkite and NICE Systems is just one example. On the sell side, I believe the major bank landscape will remain unchanged, but pressure on brokers through financial avenues due to shrinking margins, or unexpected calamities such as Knight last summer, will alter the make up here. Moreover, the UK regulatory landscape is due to change dramatically, with the division of the Financial Services Authority into the Prudential Regulatory Authority and the Financial Conduct Authority.

2013 will likely become the year of analytics, with in-memory technologies becoming increasingly prevalent and sophisticated, and more intelligent algorithmic strategies seeking returns through a cerebral use of data.

Naturally, other factors will have an impact, and this is by no means an exhaustive list. As always, drop me a line if you see any big features for 2013 that we should be keeping our eyes on.