• Performance: A
The class had an unseasonally slow start to the year but activity has picked up since. The UK’s vote to leave the European Union and Donald Trump’s victory in the US presidential elections both turned out to be pleasant surprises for market volumes and boons for trading desks and exchanges. Fixed income platforms run by Tradeweb, Icap and MarketAxess enjoyed some record days – with the latter’s share price soaring as investors sensed a winner from the increasing “electronification” of bond markets. Fixed income, currency and commodity desks – historically some of the more problematic members of the class – have come roaring back to life, particularly in the third quarter and they are expected to continue to improve in the last three months of the year. Many members of the class took decisive moves to drop certain subjects faster than they may have anticipated as the nature of post-crisis reforms became clearer. Interdealer brokers have continued to evolve, moving deeper into post-trade and electronic services. High-frequency traders, who have traditionally been quieter if influential members of the class, have continued to become more vocal.
• Behaviour: B-
Behaviour, a problem in recent years, has undoubtedly improved, if the actions of the headmaster are to be believed. As of October 5, the total fines from the Financial Conduct Authority and the Prudential Regulation Authority in 2016 was £36.5 million, according to analysis by regulatory technology firm Wolters Kluwer. That compares with £906 million in all of 2015, a 96% fall year-on-year. However, there is a sense that more needs to be done in certain areas, particularly ahead of incoming regulations from Europe. The Financial Conduct Authority has found evidence that some UK asset management firms are still using client funds intended to reward trading providers to pay for other services such as corporate access – and has warned enforcement action could follow as a result.
• Areas to work on
The class should heed some of the harsh lessons on regulatory implementation during 2016, particularly around the furore over the introduction of rules on market abuse in July. As 2017 is set to be a key year for regulatory implementation, as firms get to grips with Mifid II coming into force in 2018, firms will need to ensure their systems are ready for the changes. There is also further work ahead given the unexpected and significant alteration to the curriculum during the year. Brexit negotiations and the prospect of a Trump government rolling back previous reforms could pose unexpected challenges in the future. The class could perhaps do better at working together, particularly on cost saving initiatives and technologies such as blockchain. The class needs to decide which horse it wants to back in this area, if it is truly to achieve the improved performance it desires.