New Year’s Resolutions for Market Infrastructures in 2024

Traditional financial infrastructure providers are increasingly considering upgrading their trading systems to align with modern times. This is both based upon strategic developments taking place over the past couple of years (Microsoft investing £1.5bn in LSEG, Nasdaq collaborating with Amazon for cloud infrastructure, and Google injecting $1bn into CME Group), as well as regulators looking to modernise (ESMA’s new data strategy planning to facilitate the use of new data-related technologies, and the UK’s ”Digitisation Taskforce” aiming to fully digitise the UK shareholding framework).

I have taken a look at what 2024 might hold, and offer a few New Year’s resolutions for market infrastructures to consider:

1) Modernisation of Fixed Income market trading technology

Fixed income markets are expected to boom in 2024. Schroders advises that investing in government bonds is most rewarding either at or near the end of interest rate hiking cycle. State Street Global Advisors predicts, “As we look towards 2024 and the prospect of a significant slowdown in economic activity, we believe sovereign fixed income — and US Treasuries in particular — offers investors an increasingly attractive proposition over the medium term.” 

Due to predicted demand, the modernisation of legacy infrastructure will be critical to keep up performance. BlackRock attributes increased sophistication in its trading processes to advancements in technology and data processing, which is especially relevant due to market structure technology and data modernisation in the bond market over the past 2-3 years. We’ve also seen the B3 exchange embrace modernisation with its launch of a new platform developed entirely in the cloud for the electronic trading of fixed income assets on the secondary market.

2) Cloud-based high frequency trading

High frequency trading is estimated to grow by 11.8% by 2028, up to $12590 million from $6463.3 million in 2022. Advancements in cloud technology means the previously unthinkable has become a reality. By leveraging cloud infrastructure and multi-tenant architecture, highly-scalable, resilient, and customisable ultra-low latency matching engine solutions have been built that can be delivered to customers at much more economical prices.

A highly-scalable and flexible core trading engine - featuring a central order book, circuit breaker functionality, and market data support - can support ultra-low latency execution and power regulated and unregulated markets across multiple geographic regions worldwide. Cloud providers play a critical role here, providing on-demand cloud solutions that administer an extra layer of security, credibility and customer support to trading operations.

3) Connected compliance carbon markets

Global compliance carbon markets exceed €865 billion annually, playing a vital role in companies' net-zero strategies. Yet existing markets face challenges, such as limited participation, difficulty in trading credits across different carbon markets, uncertainty about credit authenticity, and the risk of double-counting.

The Paris Agreement's Article 6 aims to establish a robust and internationally supported carbon market, addressing these drawbacks by fostering trust, transparency and credibility. While its success is uncertain, if implemented, Article 6 could encourage international cooperation, boost market participation, and provide businesses with cost-effective options for meeting carbon reduction commitments. The expected launch of the Article 6 market could be 2025, pending approval and infrastructure development.

The transformation and implementation of the associated financial infrastructure will be critical in supporting Article 6. Because global exchanges will need to enable their clients to trade carbon assets across regulated markets, modern solutions are needed to facilitate seamless interoperability and the efficient creation of new connected markets.

Essential 2024 Tech Adaptation

Deciphering the signals on the horizon always proves challenging. What is undeniable, however, is that the way companies address their technological concerns in the upcoming year will significantly impact the way they can capitalise on 2024 trends, including the expected boom in fixed income markets, high frequency trading and compliance carbon markets. It is essential that market infrastructures stay abreast of these modernisation developments to ensure their relevancy.

As we say goodbye to 2023, I wish you all a New Year filled with optimism, joy and a warm welcome to the opportunities, growth and happiness on your journey ahead.

Happy New Year!

*This information is not intended as investment advice or recommendations and is provided solely for informational purposes. To address potential legal concerns, it is advised to seek professional guidance before making any financial decisions based on this information.