Market Structure Changes Post Trade Needs

Over 5 years ago when our founders created Firm58, one of the core principles was that changing market structure (i.e., more trading venues, digitization, etc…) was making post trade financial analysis & reporting exponentially more complex. They were clearly right. Everyone knows how hard it is to, daily, look at your OMS records, your clearing files and try to reconcile what happened across which “markets” and at what fee/rebate. Customers demand more transparency into their trade activity. Companies are scrambling at best to keep up.¬† The largest brokerages are scrambling to make sense of all this post trade data in order to reduce their Brokerage, Clearing and Execution costs, which typically represent the 2nd or 3rd largest spend in their organizations.

While I was at the Rosenblatt Financial Technology Summit in New York two weeks ago, Joe Gawronski (President) and Justin Schack (Director of Market Structure Analysis) led off the conference with a talk on regulatory reform and the impact on competition in the industry. In that talk they reviewed some of the historical facts that have lead to today’s market structure. In particular, two slides (shown here) detail the changes in market structure from 1997 to now, and put some hard facts around this problem of market fragmentation and complexity. The duopoly in US Equity Markets we knew 13 years ago has been replaced with at least nine market places or venues making up almost 98% of the volume.

market structure

What does that mean for you? As we’ve been saying for years, if you’re a brokerage of any size, and you’re trying reconcile monthly exchange invoices and fees against your daily trading activity, good luck. Spreadsheets and MBA’s are working overtime to give you (at best) averages and a high level view of the business. Granular trade by trade analysis, and detailed views of clients is impossible without a system to help you. ¬†With the pending changes in regulations and compliance around trade detail and transparency you will clearly be at risk.