Earlier this week, the Financial News reported that the world of trading is under attack on several fronts, as a slew of new rules from Dodd-Frank in the US and the international Basel III capital rules, to the European market infrastructure regulation and the review of the markets in financial instruments directive. For the most part, the rules attempt to make trading activity more electronic and transparent, while at the same time limiting the extent to which banks put their own capital to work and take on proprietary risk.
They also aim to improve the way over-the-counter trading is risk-managed, by centralising that risk in clearing houses once the trade has been executed – and by ensuring, more generally, that all booked trades are cushioned by an adequate capital buffer.
This all promises a seismic shift in the way many instruments – in particular fixed income and derivatives – are traded by a range of market participants. And cash equities will not escape unscathed either.
In the meantime, trading desks have been hit by low volatility in the first half of the year, which has led to muted trading volumes in cash equities, futures and options.
Financial News asked the industry’s top executives two questions: