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US and Chicago Trading Market Update

Date: 21 February 2017

In light of the turbulent political landscape and forthcoming regulatory reforms, we take a look at the some of the most important issues facing the US markets right now as well as some of the key issues likely to impact Chicago’s trading market. 

Changes to US Banking Regulations

Staying true to his word, President Trump has quickly scaled back the Dodd Frank Act. After just two weeks in office, Trump signed two directives that will start the process of rolling back the restrictions previously put in place by Obama. For America’s largest lenders, the Act introduced a wave of regulations, were met with mixed reactions. For many, the restrictions place too many constraints on the industry and tie up resources that could be better used to stimulate the economy.

Under particular scrutiny will be any changes to the Volcker Rule, which forbids larger banks in the high frequency space from making speculative bets with their own funds. All the evidence points to the Volcker Rule being amended – if not waived in full. Whatever the outcome, this space may become far more crowded in the future, changing operations for many businesses across the US.

Opponents of the rule have argued it fails to define the difference between prop trading and market-making. The result has been banks side-stepping making markets. Additionally, some of the top investing talent has begun to seek alternative, less regulated employment within hedge funds or private equity businesses, for example.

Moving forward, banks are going to be keen to attract that talent back into the market. Whether we will see people with the desired skillsets leaving smaller proprietary firms in favor of larger banks – or the opposite, an exodus from the banks – remains to be seen.

So far, the US stock market has responded favorably to the plans. The S&P 500 climbed to within a point of its highest-ever closing record, lenders surged 2%, and the Nasdaq composite Index soared to an all-time high. Markets aside, to make these plans a reality, President Trump needs the support of Congress – which may not be straight-forward process.

MiFID II: financial reforms in the EU

Passed in 2014, Markets in Financial Instruments Directive 2 (MiFID II) is a vast legislative package covering everything from trading to transparency, and is expected to shake up market activity considerably. In particular, it has been designed to overhaul the processes by which stocks, bonds, derivatives and commodities are traded, cleared and reported.

MiFID II, now due to come into effect in January 2018, will cost the finance industry an estimated €2.5 billion to implement.[i] As the implementation date approaches throughout this year, it promises to have a far-reaching impact on the European market, which will in turn be felt across the US market as well.  

Chicago market trends

Super-charged data network

Plans to build a faster data transmission network linking Chicago to Tokyo have been agreed by some of the biggest names in global trading. Once implemented, this will fast-track trading between these two global centers of finance. This promise to join forces is particularly significant: it indicates a truce in the long-running race to shave milliseconds off trading times. Under the new system, traders will be able to reduce infrastructure costs and compete with one another based on strategy rather than speed.

Slow down and mind the bump

When approval was granted to IEX allowing a delay on orders, it opened the floodgates for similar so-called speedbumps. In August last year, the Chicago Stock Exchange proposed a 350-microsecond delay for those who trade against resting orders on the exchange. Since then, both the NYSE Group and Nasdaq have both proposed similar delayed order types. These speedbumps are certainly having the desired effect, with aggressive, high frequency currency traders appearing to be losing momentum.

Harvesting social media sentiment

Technology is moving trading away from the floor and onto online platforms. Today, 80% of trading in the US is automated. In Chicago, many of the city’s trading firms use platforms such as Twitter and StockTwits to get real-time updates of the market and trading activity. By analyzing trading patterns and algorithms, traders are able to position themselves ahead in the market. StockTwits currently has around 1 million registered users posting roughly 140,000 messages a day, and the platform now sells its own data to trading firms.

To learn more about these trends and how they may impact recruitment in the trading market, please get in touch with the Selby Jennings Chicago team. 


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