Looking at Your Markets Business? Automation and Workflow Are Key – JP Morgan e-Trading Edit

While the 2024 edition of the JP Morgan e-Trading Edit has the expected concerns over volatility and liquidity at the top of traders’ minds, the survey, which this year encompasses over 4,000 traders’ views, also hints at a shift in focus towards workflow and efficiency.

The 8^th edition is the largest yet in terms of respondents – nearly five times the number in the 2023 edition, and, as was the case in that survey, volatile markets are seen as the biggest challenge facing traders in 2024. Although 28% of respondents cite it as their number one concern, traders seem to be coming to terms with the volatile world as in the 2023 edition volatility was cited by 48% as being their biggest challenge.

A perennial concern ever since the e-Trading Edit was launched sits second on the ladder – liquidity is cited by 24% as their biggest challenge in 2023 it was highlighted by 22%. Again, perhaps reflecting how traders have become more accustomed to the modern market structure, just a few years ago, liquidity concerns often scored in the high 30% range in this survey.

It remains to be seen whether it is an outlier perhaps triggered by the impending T+1 change in North American securities markets, but there was a noticeable uptick in traders concerned about workflow efficiency – it rose to 13% from 9%. Allied to increased interest in the buzzwords of 2023 – AI and machine learning, which were seen as the most influential technologies by 61% of respondents, compared to 51% in 2023 – the picture is painted of firms seemingly more content with their execution capabilities and the services available to them, and more concerned about squeezing out every ounce of efficiency in their processes.

An indication of the growth in interest in AI and ML can be found in the comparison with the 2022 survey, in which only 25% cited the new technologies as likely to be influential.

Other challenges facing traders – and it should be noted this is across FICC, equities and derivatives markets – is the cost of data, which was cited by 7% (up from 6% in 2023). Regulatory issues, something that is higher up FX traders’ agendas but perhaps not as much as in other markets, also saw an uptick in concern, to 7% from 4%.

Back on the trading front, information leakage was cited by 4% (up from 2% in 2023), which perhaps signals other asset classes coming up the transparency curve as electronification builds; and best execution also raises its head for 7% of traders, up from 5% in 2023. Of note, however, given recent surveys on the issue, price transparency is cited by precisely zero respondents to the e-Trading Edit, compared to 4% in the 2023 edition. Another factor to disappear over the past 12 months is concern over fragmentation. After 12% cited in the 2023 survey, no-one ticked the box in 2024.

In general, FX traders are broadly represented by the findings (they made up the largest segment of respondents at 17%), although best execution requirements are of a lower concern here, perhaps thanks to the more mature offering available from third-party TCA providers, as well as the data and analytics available from their banks. FX and precious metals options traders were more concerned with best ex requirements, as they were with regulatory changes. In perhaps the most unsurprising finding of the entire survey, the group most concerned with volatile markets was…crypto traders.

On the technology front, perhaps reflecting their relatively late arrival to the technology, G10 Rates, EM Rates and credit/spread traders placed the highest importance on API integration. Intriguingly, commodities traders placed most importance on quantum computing.

Everyone’s Looking ‘e’

One of the more remarkable findings of the 2024 e-Trading Edit is that 100% of respondents are expecting to increase their electronic trading activity. This is not to say, of course, that they are going to trade exclusively electronically, but it is likely to be heartening for those in the e-trading services business.

A surprising subset of this finding is that, assuming that the predictions are correct, FX traders will only be executing the third highest percentage of their volume via e-channels. From easily being the most automated market in the 2022 edition, and tied first in 2023, FX has found itself overtaken by commodities and FX and precious metal options in terms of the percentage of volume traded electronically. Commodities traders expect to execute 68% electronically in 2024 (and 77% in 2025), while FX and PM options traders expect to execute 66% (75% in 2025). FX has actually slipped back, with 65% of flow expected to be traded electronically, down from 66% in 2023, although in 2025 this ratio is expected to rise to 73%.

Perhaps reflecting their manual legacy, corporate bonds, ETFs and government bonds are expected to have the most developments in e-trading in 2024.

The e-Trading Edit also picks up on another trend that has been in place in FX for some time, but appears to be emerging in other markets, in spite of regulatory attempts to push them to open, limit order type structures – the rise of direct connectivity. Data from the Bank for International Settlements and regional FX committees have highlighted how an increasing amount of FX business is executed on a bilateral basis, and traders clearly see the benefits across asset classes.

With the exception of commodities (including precious metals) traders, respondents across the other eight asset classes surveyed cite access to liquidity or inventory as the number one benefit of direct connectivity. In FX 32% cite that factor, in FX and PM options it is 29%, but moving deeper into the FICC space even higher percentages are realised. While 37% of G10 Rates traders cite liquidity and inventory access as the prime benefit, 42% of Credit/Spread traders see it as important.

While commodities traders are focused on the benefit of reduced execution and brokerage costs as the number one reason to connect directly, the other asset classes have that factor in second place – in FX 26% cite it, and in FX and PM options 27%. There is also good insight into where providers are focusing their budgets when it comes to execution, with commodities traders seeing access to cutting-edge execution technology as the second most important factor for direct connectivity, 23% naming it. For the others, it is third, with 17% of FX and 21% of FX and PM options traders citing it. With FX execution tools at a much later stage of evolution, it is unsurprising to see markets such as commodities and options, where banks still see an opportunity to add value, attracting more interest.

2024 will be a year of continued change with technology playing the lead role in responding to these challenges, and breeding an environment in which innovation can thrive

Tailored pricing and data ownership are also cited as reasons for direct connectivity, although it is a little surprising to see the reduction of information leakage languishing at the bottom of the list of reasons to connect. A still meaningful 7% of traders in most asset classes, including FX and options, saw this as a good reason, however given the opportunities from, in FX at least, internalisation, the relatively low importance put upon this as a reason for direct connectivity may be a little surprising.

For anyone planning an electronic platform or looking to upgrade their existing offering, the user experience remains paramount, with 19% citing this as the feature traders value most, followed closely by the availability of data at 18%. Analytics at 15%, market analysis and market colour, both at 12% follow, with trade ideas, market trends and a tailored experience closing the responses out.

This suggests that while execution tools and the availability of liquidity are vital, a lot of traders like to use their favourite platform for trade planning. The key, as always for a provider, is to get the trade from the analysis – in other words, linking information services to execution tools remains a key element of any successful platform.

As can often be the case with this survey, the news for crypto is not necessarily that good. More traders say they have no plans to trade crypto than in 2023 (78% from 72%), and less traders (12% from 14%) say they are looking at trading the nascent asset class. This leaves 10% who are trading crypto, which is also down in projections in last year’s e-Trading Edit, where 8% said they were trading and 6% said they planned to within one year. The work continues for the crypto evangelists.

Overall, the 2024 edition of the e-Trading Edit gives the sense that where FX has been, other markets are starting to follow. The less commoditised nature of many of these asset classes means that a time lag is inevitable, but with a focus on direct connectivity and concerns over workflow, they are reflecting events in FX markets over the past five-to-10 years.

Automation will continue apace, and clearly firms are looking at new and emerging technologies – although notably, less people thought blockchain would have an impact in this year’s Edit – to help them along that journey; but at the end of the day, the winners will be those that can provide consistent access to liquidity in a user-friendly fashion.

The Edit is also a valuable insight into the minds of traders, although in a strange way, their thoughts on what will move markets (inflation and the US election are one and two in the list) are less important, given the transient nature of market influences. From a market structure perspective, however, there are some clues as to how things will play out and what traders’ attitudes to these changes are likely to be.

To this end, the spread of respondents, in addition to the sheer number of them, is very impressive, with feedback from traders with everything from 20+ years to less than two years’ experience included. This ensures that the next generation of voices is being heard, albeit in a minority naturally, alongside the thoughts of the people that are driving businesses now.

There seems little doubt, reading this year’s Edit results, that 2024 will be a year of continued change. Equally, it is obvious that technology will play the lead role in responding to these challenges. This breeds an environment in which innovation can thrive, with new ways of doing business, but perhaps more pertinently, new and improved ways of processing that business.

The world is changing, and this survey highlights just how much – and where the hotspots are. FX will probably take a back seat thanks to its existing heavily automated structure, but it will be worth keeping an eye on developments in other asset classes. After all, good ideas occasionally come from the most unexpected places.