What Does Innovation Look Like in Today’s Execution Venues?

Over the last 30 years, the amazing pace of innovation in electronic trading has completely transformed global capital markets. One could argue that the changing regulatory landscape has played a meaningful role in initiating various aspects of today’s market structure evolution. But other factors—such as the growth of the internet and cloud computing, advancements in trading technologies and data analytics, increasing industrywide cost pressures, changes in customer expectations, and innovations in business and pricing models—have also aided in developing today’s market structure across the different asset classes.

Starting with the exchange-traded cash equity market, significant changes have swept across different asset classes and their associated execution venues. This led to fierce competition everywhere, triggering a technology arms race and an era of constant innovation. However, since 2015, while global electronification has continued, transformative market innovations appear to have slowed down.

New players have emerged now and then to energize the market for a bit. Still, the industry has yet to see anything that could rival the long-lasting impact of key players, such as Instinet, Island, and various types of dark pools in the equities market; Tradeweb and MarketAxess on the fixed income side; and Reuters Matching, EBS, FX Connect, and FXall in the foreign exchange (FX) market.

As we think ahead to where future innovations in execution venues may come from, the following points are clear:

  • Innovation occurs amidst market uncertainty: Uncertain global economic and political conditions persist, but this unstable external market environment can also become an ideal launchpad for new market innovation in execution venues.
  • Many factors drive innovation in execution venues: There are various reasons for the growth and expansion of innovation and competition in execution venues, including regulatory changes, the introduction of new business models, and advancements in technology.
  • New execution venues must pay attention to various key factors for success: With cutting-edge technology becoming table stakes, new execution venues must focus on attracting credible liquidity, providing quality of execution, building long-term relationships with customers and liquidity providers, and creating compelling value-added products and service beyond trade execution.

For more information on innovation in execution venues and to see profiles of some of the exciting new execution venues in the market today, please read my latest report, Innovations in Execution Venues: Looking to Reignite Market Growth.

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