THETRADETECH DAILY THE OFFICIAL NEWSPAPER OF TRADETECH 2026
Keeping up with changing geopolitical dynamics
How do you expect institutional trading behaviour to evolve as markets adjust to a more volatile policy and geopolitical environment? Investors have increasingly had to contend with fast-paced, narrative-driven markets, over the past year in particular. We’ ve seen an acceleration in the velocity and magnitude of market moves, not least due to a more volatile geopolitical backdrop,‘ governing via social media’ and the‘ always on’ news cycle.
Marry this with the evolving make up of market participants, sizeable algorithmic trading and the increased ability to respond to news flow with ready access to markets, it’ s becoming ever more difficult to distinguish signal from noise.
Institutional investors are becoming more adept to crises and appear to be navigating geopolitical volatility far more calmly than I ever remember in the past. They also appear to be more willing to ignore‘ rules of thumb’- the playbook of assets moving to USD, fixed income outperforming equities and gold rising in a risk off environment is not working anymore- and think more in terms of actual fundamentals, such as that inflation may go up and hence yield may go up, and in a world with high government debt, the so called‘ risk free’ assets such as government bonds are not risk free anymore.
My expectation for institutional investors is that they will continue to see diversification as the best defensive trade. Anecdotally, we continue to see our clients diversifying funds into Asia and Europe.
There is still a lot of geopolitical and macro uncertainty, so investors will be looking to see how the instability is feeding through to corporate profitability.
Traders have plenty of experience of dealing with volatile markets and uncertain geopolitical backdrops, along with shifting market infrastructure and dynamics.
The increased velocity and magnitude of market movements have added an additional challenge in the past years, but they have proved their ability to adapt to changing market and liquidity conditions.
Being aware of more structural changes in particular and maintaining a feedback loop with fund management teams to assess ongoing impacts is crucial in navigating evolving markets and liquidity opportunities and adapting accordingly.
What changes in market liquidity or execution dynamics do you think participants should be preparing for over the next few years? There are a significant number of developments
The TRADE catches up with Fabiana Fedeli, chief investment officer, equities, multi-asset and sustainability at M & G Investments, to explore how trading behaviour is adapting to volatile market conditions, and how these conditions may impact liquidity and execution going forward.
that participants will have their eyes on in the near- to medium-term. A key consideration is how all of these will be digested by the market. These include: The implementation of the UK and European consolidated tapes – aimed at maximising overall transparency, while protecting sensitive trades and not creating undue risk to liquidity providers.
The EU Market Integration and Supervision Package( MISP) and the impact that this may have on liquidity and liquidity provision.
Private market initiatives such as the LSEG PISCES( Private Intermittent Securities and Capital Exchange System) – the new FCA-approved Private Securities Market supports the PISCES regulatory framework, making it easier and quicker to trade shares in private companies during intermittent trading events.
The- predominantly US- push for a move to‘ 23 / 5’ trading( commonly referred to as 24 / 7 trading but most participants are working on it being 23 hours a day, 5 days a week for now).
There is also increasing discussion on the tokenisation of equities and distributed ledger technology( DLT) – this appears to be far off in Europe, but could arrive faster than we expect as the US markets and regulators are already moving on this.
More broadly, we are seeing the evolving nature and adoption of investment vehicles, such as the rise of passive and active ETFs. Participants will be monitoring scale and usage, and how these instruments interact with and provide liquidity opportunities in the market.
Which parts of the market infrastructure do you think will be most tested if volatility driven by policy shifts persists? In terms of government policy, Trump’ s‘ Liberation Day’ last year created a level of uncertainty – delivering rapid market volatility and widening spreads. More recently, the Middle East conflict is injecting another round of uncertainty, but given the timing of the conflict( coinciding with many religious and public holidays) it’ s difficult to gauge any enduring impact on the functioning of the markets and, so far, beyond the oil price volatility, markets have been fairly measured in response to news flow.
One observation we could make here is the increased sensitivity of retail investors during times of market stress – increased market participation and the heightened reactivity is worth considering when we think about potential market vulnerabilities.
More generally, one of the biggest concerns is where liquidity provision comes from and if policy change is well balanced and listens to all markets users.
The market since Mifid has continued to introduce new liquidity provision and execution venues – alternate exchanges such as Aquis and Cboe Bids, the central risk books of traditional banks or the electronic liquidity providers as well as periodic auctions and dark pools. While we would be wary of policy that would impact this liquidity provision, we are confident that the market would adapt to any changes.
Looking ahead, where do you expect the biggest structural changes in global markets to come from? The push for 24-hour trading. We will likely still have a traditional market open and close that will focus liquidity, but opening up trading hours will create the opportunity for more global players to deal in US and European markets( not least retail investors in parts of Asia).
It may also mean that we see greater market volatility if key corporate announcements- delivered at close currently- see traders, both human and electronic, react in a round-theclock fashion.
Not least, it will be a real test of the 24-hour functionality and capability of our market systems.
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