The worsening economic climate with the UK slipping back into a double-dip recession, the on-going eurozone crisis and the restriction of IT budgets as banks pull back and prepare for the impending post-crash regulatory challenges, were all weighing heavily on the minds of 2,000 attendees at the TradeTech 2012 show in London’s Excel Arena this week, reports Jim Ottewill.
Travelling to TradeTech 2012 upon London’s driverless Dockland’s Light Railway service always makes one feel like a character in a science fiction film – and in this instance, catching such a futuristic-looking mode of transport to journey to the investment banking and trading show seemed appropriate as I looked forward to two days of discussion about automated trading systems, data centre co-location, latency and the myriad of market and regulatory challenges facing the sector.
Now in its twelve outing, TradeTech 2012 had 150 speakers and a mixture of executives from both the buy and sell-side present, but the mood was anything but sunny. Many of the predictions for the financial services industry discussed in the first morning’s main plenary sessions on 25th April were as gloomy as the torrential rain and grey skies outside.
Alasdair Haynes, chair of the event, welcomed attendees with pessimistic words about the health of the sector. He said that many of the “green shoots” in the markets last year had now gone. Instead, the investment banking and trading industry is staring at the face of a troubled Europe, with declining trading volumes and many firms choosing to fire rather than hire staff. “The industry is at a critical crossroads”, he emphasised during his opening address.
Uncertainty was a theme at the heart of many of the talks delivered on the first morning. Richard Lacaille, Chief Investment Officer at State Street Global Advisors, discussed the future of asset management saying that the industry has suffered a loss of confidence. This has led to a long process of self-analysis with participants in the sector asking themselves: ‘have we provided value for money? Why do financial markets exist? Does the sector work effectively as an intermediary’?
He concluded: “A focus on values will lift the reputation of the industry. But it needs a lot of lifting. The banking sector needs to live in the present-day if it is to work effectively.”
Philip Coggan, Capital Markets Editor at The Economist, began his New World Order talk with a joke: “An Irish man, a Greek man and a Portuguese man go into a bar and order a drink. Who pays?” he asked. Answer: “Germany”.
But those were Coggan’s only words that generated a laugh within the audience. He painted a detailed but grim picture of the UK and other western economies as fading powers losing their dominance within the global market place, with the on-going eurozone crisis just exacerbating the problem. “We have made too many promises we cannot fulfil – to creditors and consumers alike. And these are key issues which pit the rich against poor, and countries against each other,” he explained.
Coggan outlined how the economic ‘world order’ is changing with the perspective of the UK shifting as it continues to strive for growth in the wake of the global credit crisis. “China views us in the same way that the Germans regard Greece: like a mother who lectures her child who has gone to university and spent too much on his credit card,” he concluded.
In the panel debate on the role of capital markets in society, discussion focused on what the markets need to do to get back on their feet. Over the course of a lively debate, it emerged that the majority of the panellists thought that greater transparency within the banking sector would do much to improve its image in the eyes of the real economy and bolster market confidence. In the discussion, Ruben Lee, Chief Executive at Oxford Finance Group, said that the financial services sector is both the cause and the scapegoat for the global credit crisis.
“The causes for the crisis were multitude, but the industry needs to adopt two approaches. It needs to illustrate how it wasn’t alone in bringing the crisis about while also showing how it has responded to criticism,” he explained.
Out on the exhibition floor, away from the conference, many of those in attendance at TradeTech 2012 unsurprisingly highlighted changes to existing banking legislation as a key topic, driving technological change as it is and increased reporting duties. When asked for his three main issues, BT Radianz’ Erfan Shaikh said: “Regulation, regulation and regulation”, echoing many a thought.
Regulation and whether those responsible for it understand what they are attempting to achieve was highlighted in another panel debate on reshaping market structures. Martin Ekers, Head of Trading at Northern Trust, said that many authorities attempting to make changes to legislation are struggling to comprehend the extent of their task. “It is difficult to anticipate what the unintended consequences of their actions will be, especially as there is not much meat on the bones of their ideas,” he said.
It was a point that Oxford Finance Group’s Lee agreed with earlier, arguing in his presentation that there was already too much legislation surrounding electronic trades. “This deluge will lead to gaps, overlaps and inconsistencies,” he warned. However, in his talk on understanding regulatory priorities, he was also keen to underline how competition is good to ensure trades remain at lower prices and the end-customer remains the business focus.
In a regulatory session entitled ‘Overview of the current strategies and goals for MiFID II’, debate again surrounded this new piece of legislation and how the various market stake holders can make it work effectively. Tim Rowe, Head of Trading Platforms and Settlement Policy at the UK’s Financial Services Authority (FSA), a panellist in the debate, was presented with a magic wand at the start of the session. The gift may have been a joke but was also an effective way of illustrating just how difficult his task is seen by the sector. And his words did little to suggest that the FSA was in complete control of the regulatory situation surrounding MiFID II. When asked whether the FSA was the glue needed to keep the markets together over this legislation, he replied: “Probably not as no one single party is in control of every aspect of MiFID II. There is only so much the FSA can do to steer the markets through this situation.” It is a Europe-wide initiative after all.
Outside of the Excel venue in London after the show came to an end a rainbow was struggling to break through the clouds as rain continued to come down. A literary pathetic fallacy perhaps, with the weather reflecting some bright signs of sunshine in a generally downcast situation? Maybe so, but the attendees at TradeTech 2012 mainly proved that dark clouds of uncertainty still persist.