2020
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P R E D I C T I O N S ]
VISION
Gary Paulin
global head of integrated trading solutions,
Northern Trust Capital Markets
We believe the active manage-
ment industry needs to cut costs
by around 40% over the next
five years to keep the cost curve ahead of fee
compression. This is going to force many market
participants to radically rethink their operating
models and consider outsourcing their front
office. The problems don’t stop with costs; there
are also new structural forces at play that will
continue to reshape the market going into 2020
and beyond. Factors like increasing compe-
tition from passives, complex technological
shifts and regulation focused on transparency,
accountability and fairness will continue to drive
a third wave of outsourcing in the wake of the
middle and back offices in previous decades. I
predict that more firms will shed the fixed costs,
complexity and risk of in-house trading, instead
choosing to focus on their core competency –
the pursuit of alpha.
60 // TheTrade // Winter 2019
Brexit will be front and centre of discussions in
2020. Whether we see its true impact on share
trading in the UK and in Europe next year is to
be seen. However, concerns remain the MiFID
II share trading obligation may lead to further
fragmentation and complexity. This could see
a swing in favour of doing more business on
primary markets but also towards an increase
in high touch trading and risk business away
from execution wheels, which could lead to an
increase in the cost of execution. Matching at
mid-price on periodic auctions and the abili-
ty for systematic internalisers to offer price
improvement below large-in-scale will also come
under further scrutiny, with the likelihood it will
disappear altogether. Next year may be the year
the industry decides to introduce a consolidat-
ed tape and reduce trading hours for equities
markets, but we will unlikely see any real impact
during 2020.
James Baugh
head of EMEA equities market
structure, Citigroup