Cboe named Wei Liao as its new director of derivatives market intelligence, as part of the network’s continued expansion of its global derivatives business.  Liao will work out of Hong Kong, where she will focus on driving forward Cboe’s derivatives market and content franchise to its client base in Asia Pacific (APAC). Liao brings 15 years of macroeconomic research, trading and portfolio management experience to the new role, and before joining Cboe, she worked as a portfolio manager at CQS Asset Management.  Prior to this, she was also the founder and manager of derivatives-focused hedge fund, Watercourse Macro Found. Mandy Xu, global head of derivatives market intelligence at Cboe said: “With her background as a portfolio manager and trader, Wei brings deep market expertise, a seasoned practitioner’s perspective, and a client-first mindset – all of which are critical as we work to close the education gap and support the region’s next phase of growth.” 

The TRADE is thrilled to announce that Natasha Cocksedge has joined the team as a reporter, effective 7 April. In the role, Cocksedge is set to work across the publication’s offerings, including its digital content, print magazine, multimedia features, events and research. Cocksedge’s appointment follows the departure of Wesley Bray in February.  Most recently, Cocksedge served at MyLondon covering local news and event. Previous experience also includes stints reporting for: The Londoners, ENDS Report, and The Farnham Herald. Annabel Smith, editor of The TRADE, said: “I’m delighted to welcome Natasha to our editorial team. She joins The TRADE at a pivotal time in our growth as we look to build on record web traffic in 2024, increase in multimedia products and the successful expansion of our Leaders in Trading event to the US.” 

Wayne Barber is set to expand his role on the Janus Henderson fixed income desk to include trading, after three years working as a data analyst for the firm. In his tenure, Barber has worked with the trading team on data-related mandates including working to optimise execution for the desk. Previously in his career, he worked as a software engineer at Accenture and before that as a sales executive for WebsEdge. Speaking to The TRADE, a spokesperson for Janus Henderson said: “[Barber] was brought in to help the team with their trade data and TCA analysis. Over this time he has built a central database and a number of tools that the team rely upon daily. While working with the trading team he has developed an interest in the markets and recently his role has broadened to include money markets, rates and FX trading. He is also keenly interested in looking at automation and garnering efficiencies in our systems.”  

Nikhil Rathi has been reappointed chief executive of the Financial Conduct Authority (FCA) for a second term. He was first named CEO back in June 2020, taking up the role in October later that year. Rathi’s new term will run until September 2030, focused on leading reform in the regulatory environment, building on previous efforts such as the introduction of the ‘consumer duty’. Speaking to his new appointment, Rathi said: “I am honoured to be reappointed by the Chancellor. The FCA does vital work to enable a fair and thriving financial services sector for the good of consumers and the economy. I am proud of the reforms we have delivered to support growth, bolster operational effectiveness, set higher standards and to keep our markets clean and open.” 

Paul Atkins has assumed his role as chair of the US Securities and Exchange Commission (SEC), having been confirmed as Gary Gensler’s successor in January 2025. Mark Uyeda had been serving as acting SEC chair in the interim. Atkins’ previous roles include a prior stint as a commissioner of the SEC – appointed in July 2002 by President George W. Bush, where he served until August 2008. Before that, he founded and became chief executive of strategy, risk management and compliance consultancy, Patomak Global Partners.  

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Following this, the UK’s Financial Conduct Authority (FCA) has welcomed the recommendations, alongside the Government and the Bank of England.   

The FCA stated that it supports the transition to T+1 settlement in UK markets and calls on the industry to engage and start planning as soon as possible.   

“We highlighted how the move to T+1 will make our markets more efficient and support growth in our recent letter to the Prime Minister. We will support industry as they move to T+1 and expect firms to engage and plan early,” said Nikhil Rathi, chief executive at the FCA. 

The plan published by the AST includes a Code of Conduct for market participants, confirming that 11 October 2027 will be the first trading date in UK cash equities for settlement on a T+1 cycle; aligning with the European Union and Switzerland.  

Elsewhere in its report, the AST included five behavioural commitments including a push for automation in SSIs, corporate actions, stock lending recalls, and a focus on ‘action this day’ urging firms to begin planning and where practicable, immediate implementation.  

Read more: UK taskforce publishes blueprint for T+1 transition  

At the time of publication of the report, Andrew Douglas, chair of the UK T+1 AST, said: “This is a milestone in the UK’s journey to T+1 settlement and reflects a substantial amount of work and co-operation across the industry.  

“We have a date and a detailed plan for the way ahead. Market participants should start planning now ahead of the 2025 budget process for project funding in 2026.  Automation will be a key component of a successful implementation.”  

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The case concerns Infinox Capital which has been fined £99,200 by the watchdog for failing to submit 46,053 transaction reports between 1 October 2022 and 31 March 2023.

This oversight “risked market abuse going undetected,” said the regulator, adding that “to monitor, detect and disrupt market abuse effectively, the FCA needs to receive complete, accurate and timely transaction reports.”

To date, the FCA has fined several firms for transaction reporting failures, including some of the biggest names in the industry. This instance, however, signals the beginning of the new era, wherein such breaches will be officially considered under the Mifir laws by the data-led regulator.

Read more: Transaction reporting errors surge amid pandemic for majority of firms, research finds 

Specifically, Infinox failed to submit transaction reports for single-stock contracts for difference trades executed through one of its corporate brokerage accounts over the five-month period, which reportedly accounted for the majority of this business line. 

The breach “highlighted weaknesses in Infinox’s transaction reporting systems and controls for a high-risk investment product,” said the FCA.

Infinox identified its failing following a third-party review, however the firm did not proactively report the breach to the watchdog – instead the regulator identified this discrepancy in transaction data submitted by Infinox itself. 

The breach highlighted weaknesses in Infinox’s transaction reporting systems and controls for a high-risk investment product.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “As a data-led regulator it is vital that firms submit accurate and timely transaction reports, and promptly bring any failures to our attention.

Infinox failed to do this, which meant market abuse could have flown under the radar and risked the integrity of the market.”

Smart added that the regulator’s specialist teams are constantly monitoring market data in real time in order to track indications of any misconduct.

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In light of the final rules, the potential early-adopter group has doubled to 18.2%, up from 9.1% while the group of managers which are neutral and ‘waiting to see’ has grown slightly from 42% to 45%.

At the same time, 18.2% were found to be ‘sceptical and not engaged’, while 9.1% confirmed they were ‘not interested in moving’, regarding the unbundling rollback as “an unwelcome distraction, now that they finally have their post-Mifid II processes in place and working well,” said Substantive.

Changes made by the FCA in the final rules have eliminated some deal breakers for the more engaged firms keen to proceed.

Specifically, the FCA has removed key operational barriers which were hampering the potential take-up of greater flexibility in research funding.

The survey found ‘relaxation of the rules around strategy level budgets’ was the most important change for 60% of respondents, followed by 18.2% who highlighted ‘removing the requirement for buy-side firms to have separate written agreements with providers’.

Speaking to The TRADE, Mike Carrodus, chief executive of Substantive Research, explains: “Asset managers now have clarity in the UK, so from a regulatory perspective the focus moves onto the EU. Proposed research ‘joint payments’ language for the EU’s Listing Act seems more flexible and less prescriptive than the FCA’s consultation paper, but legal reviews are ongoing and there is uncertainty about how much added guidance is still to come.”

He further adds that the likelihood is for less of a regulatory clash between the US, the EU and the UK going forwards, however “how truly aligned they will be remains to be seen”.

The final FCA payment optionality rules for investment research were published in July and came into force on 1 August 2024.

Read more: FCA tables re-bundling to support more ‘flexible’ approach to research 

Notably, a number of senior executives on the buy-side are not keen to open up the fees discussion at the moment due to the current market situation representing such a challenging landscape for asset gathering and retention. 

Carrodus explained: “As these are new costs being reintroduced after 6 years of asset managers paying for them out of their own pockets, they anticipate pushback from clients and do not want to have to try and figure out what to do if a handful of clients object and opt out of paying while the rest acquiesce.

“Brokers and independent research providers may target a more lucrative future after years of price deflation, but we’ll only know if those hopes are well founded when the first canaries venture down the coalmine this winter!”

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With three months to go until the Libor transition deadline the watchdog has confirmed that is has no intention to use its powers to compel the ICE Benchmark Administration Limited (IBA) to continue to publish the settings beyond September.

Speaking last April, when the official extension of the expiration deadline was announced, the FCA asserted: “Firms must therefore continue to actively transition contracts that reference US dollar Libor. We continue to expect firms to take action and deliver demonstrable progress.

“Synthetic Libor is only a temporary bridge, and synthetic settings will not continue simply for the convenience of those who could have transitioned their contracts but have not done so.”

The 1-, 3- and 6-month synthetic US dollar LIBOR settings are set to cease after publication on Monday 30 September 2024 specifically. 

Read more: FCA extends expiration deadline of synthetic US dollar Libor to September 2024

“Their cessation will mark the final milestone in the transition away from Libor […] Parties to contracts still referencing US dollar LIBOR should be taking steps to transition to appropriate, robust reference rates, renegotiating with counterparties where necessary,” concluded the watchdog.

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Daniel Mayston and Edward Wicks

Members will serve for a two-year period between June 2024 and June 2026.

Key buy-side members include Daniel Mayston, head of e-trading and market structure at BlackRock, Edward Wicks, global head of trading at LGIM, Tom Lee, head of trading at Hargreaves Lansdown, and Frances Ritter, Equity Index Group portfolio manager and trader at Vanguard Asset Management.

Members hailing from sell-side include Kate Finlayson, manging director at JP Morgan, Eleanor Beasley, managing director at Goldman Sachs, Chris Dickens, head of non-financial risk, markets and securities services at HSBC Bank, Virginie Saade, head of government and regulatory policy, EMEA at Citadel. 

As well as Elisa Menardo, deputy head, governmental affairs, EMEA at UBS, Hans Buehler, co-CEO at XTX Markets, Peter Whitaker, head of Europe/Asia market structure at Jane Street, and Maria Salamanca Meija, executive director, EMEA head of market structure at Morgan Stanley.

The committee is aimed at supporting the watchdog’s work across equities, fixed income, foreign exchange, and commodities across the scope of securities, futures, swaps, and options markets. Specifically, the members will assist through developing reforms focused on improving market competition, increasing customer protection and enhancing market integrity.

In addition, the committee will provide data and analysis to support policy reform as well as identifying key market developments which have the potential to affect the proper functioning of secondary markets.

The FCA has also appointed experts hailing from various trading venues, such as: Nick Dutton, chief regulatory officer at CBOE Europe, Kristina Combe, chief regulatory and compliance officer at LME Group, Laurence Walton, head of regulation and compliance at ICE Futures Europe, and Jessica Morrison, head of market structure and quantitative analysis at London Stock Exchange Group. 

Mel Gunewardena, senior advisor to Nikhil Rathi, FCA chief executive is set to chair the committee, working closely with director of infrastructure and exchanges, Jon Relleen and the FCA’s trading policy team.

Read more: When it comes to capital market regulation, market input is essential to avoid taking a hammer to crack a nut, says FCA 

Other members include Arran Rowsell, head of strategy at BGC, Carla Grundy, EMEA head of trading venues and market infrastructure at TP ICAP, Rosie Murphy Williams, chief oversight officer, EMEA/global controls at The Bank of New York Mellon, and Gary Chia-Hsing Li, head of regulatory affairs, EMEA and APAC at MarketAxess.

Making up the remainder of the committee are: Jennifer Keser, managing director, head of regulation and market structure at Tradeweb, Kirston Winters, chief risk officer at OSTTRA, Judy Barrage, head of regulation and trade controls – trading and supply – at Shell International Trading and Shipping Company, Anne Plested, head of regulation change at ION Markets, and Rebecca Healey, managing partner – capital markets consultant at Redlap Consulting.

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The overarching theme of the director’s speech was a call for a decidedly collaborative and “calm” approach to market reforms, wherein market participants and regulators (namely the FCA) continue a symbiotic relationship to foster a proportional approach to regulating the ever-evolving market.

In order to avoid unintended consequences “or worse, taking a hammer to crack a nut,” as Pritchard put it, market input is paramount as the watchdog looks to future-proof its rules and create a cohesive reform agenda.

The speech directly addressed the recent research payment rules, which followed the Investment Research Review, chaired by Rachel Kent, supporting greater optionality around how firms can pay for research. 

Specifically, the FCA confirmed last month that its proposed reforms will look to give asset managers greater flexibility on how they buy research.

Speaking to the process which led to the decision, Pritchard explained: “We know that one size doesn’t always fit all – which is why we have acted quickly […] This greater choice should suit firms of varying business models and sizes, helping to promote competition. It will allow the ‘bundling’ of payments for third-party research and trade execution, and would exist alongside those already available, such as payment from an asset manager’s own resources or from a dedicated account.”

The ease of cross-border activity is due to the proposed new plans being compatible with rules governing research payments in certain other major jurisdictions, said the watchdog at the time. 

Read more: A welcome freedom, temporary measure or futile task? The industry reacts to the UK’s new research proposal 

In this vein, the speech also touched on the importance of consistent standards across jurisdictions as the impact of volatility and turbulent geopolitics continue to affect the pursuit for healthy and efficient capital markets. 

“We live in sometimes staggering times of technological change, changing demographics and international marketplaces […]  There are often differing regimes in place internationally but as the world economy and financial markets are ever more global, we are leading the way in key areas where international cohesion is most important,” asserted Pritchard.

She also confirmed that the FCA continues to foster close relationships with international partners on market risk, explaining that despite differing viewpoints, engaging and testing across the market is vital.

“While the economic and financial weather may not always be calm and sunny, we need to make sure that our rules work and can adapt for all types of challenges and can cope with some serious buffeting, at the worst of times.”

Elsewhere in the speech, the FCA’s digital securities sandbox initiative, which celebrates its tenth birthday this year, was discussed. Pritchard took time to share some specific wins that firms entering the regulatory sandbox had seen in recent times.

Read more: Bank of England and FCA to launch joint Digital Securities Sandbox

Sandbox firms saw a 15% increase in capital raised, and these entities have also been found to be 50% more likely to raise capital than peers. In addition, Pritchard confirmed that the model has been replicated by over 95 international regulators to date.

When it came to future plans, the speech made clear the FCA’s focus on ‘future-focused regulation,’ specifically for insurgent themes such as AI.

“We will not be regulating for regulation’s sake and will be guided by our outcomes-driven approach. But we must provide certainty and encourage the safe adoption of AI in UK finance markets, so we must also look at digital infrastructure, resilience, consumer safety and data,” said Pritchard.

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Things are definitely evolving and all the noise creates more discussion. In terms of initial impact we took a first look and the main thing was that there were no major stumbling blocks in the consultation paper, no real sting in the tail. For asset managers there is nothing operationally, or from a regulatory perspective, that will act as a real dealbreaker, however there are some things that asset managers will either need clarifying or will have to make a call on in terms of interpretation.  

There are a couple of specific areas that many on the buy-side have found unhelpful, including how granular the reporting and disclosure requirements would have to become. Right now you can already charge clients for your research costs using an operationally burdensome Research Payment Account (RPA) arrangement which puts most firms off, so it’s key that this new structure is seen as a simpler option. 

These freedoms soften the burden to an extent. Asset managers will move onto the commercial conversations with their client base about whether they will allow these costs to be returned to them, and change will hinge on whether managers feel confident that there’s not going to be any sort of negative competitive consequences.  

What are the expected speed bumps following this news? 

It links to pre and post reporting, and how that fits into regulatory alignment – across the US and UK. There are a lot of American firms who use research and pay as they go, as opposed to setting a budget. Many just pay using the commission sharing arrangements (CSA) and then assess – they’re not setting a clear, delineated research budget at the beginning of the year, and others that do set a budget often set it at a firm-wide level which may not be sufficiently detailed.

It also depends on a firm’s structure internally, such as whether they share research around the firm which can create issues within this new structure. For those who already have the systems in place in terms of budgets and metrics, they will feel like this is less of a challenge. However, for others, they’ll have to set up steering groups and take more time. There’s a clear spectrum of varying responses to the consultation paper from our survey group. 

Is there a common denominator between the parties that are quite pro-rebundling? 

I think it’s easier to understand the eagerness from those who are just trying to have consistency across different regions and jurisdictions, it’s an authentic narrative that shows a preference for global alignment and the ability to mirror the regulatory alignment with your own global process. Outside of those use cases the positivity for these new freedoms is not so clear cut. 

The review led by Rachel Kent outlined that returning research costs to end investors could be commensurate with their best interests, and could contribute to better performance and allocation of capital. But whether asset owners buy into this is another question. 

In addition, for firms which do not have business in multiple geographies, the importance of global cohesiveness and aligning with that shift loses gravitas, and it’s unsurprising that some firms that are UK-only are less keen. It’s a nuanced conversation, and following this consultation paper, end investors will have two key questions – what do I get for the extra money that I’m being charged? and how do I know it is an appropriate use of tightening budgets?  

Read more: FCA tables re-bundling to support more ‘flexible’ approach to research 

In the first instance, they’re not going to be guaranteed alpha, but these new freedoms could add a flexibility and structure that allows for optionality in getting different research inputs to contribute to investment decisions. This could be in the interests of the asset owner. In terms of spending budget wisely and focusing on value, that’s the intention of the FCA’s guardrails and constraints. It’s extremely interesting for us at Substantive Research that price benchmarking is one of the suggestions to come from the Kent review.

It’s important to note that price benchmarking is not necessarily about always driving the cost of research down. Even if this payment optionality trend didn’t take off, our data already shows that research budgets and research payments have stabilised somewhat. But what benchmarking of this kind does is illustrate to firms where they are over or underspending versus peers, so for example if they want to reward a provider 20% or 30% more than peers, they can do so from a position of knowledge which they can report confidently to clients.  

Now that the US and the UK are more closely aligned, what’s the current state of play across the rest of Europe?  

I’m not an expert on EU processes but we now have some of the new language to assess, and it appears that there is more openness to actual rebundling from the EU bloc. However, also included are mentions about separate research agreements, assessing the value of research and understanding how much firms are paying, which indicates an element of CSA.  

So on the one hand, you’ve got language that leans positively towards rebundling, but then there are other factors, for example one intriguing part of the EU rhetoric which says that in essence end investor clients should be able to ask firms for details about their managers’ policies on research, if indeed they have them. But if your asset manager decides not to have that information collated, then they might not have to deliver it. It’s a potential loophole in theory. 

This aside, the EU will have fewer guardrails but a similar approach to whatever final form the FCA’s new rules take. In the end, I suspect the EU research market will get to a very similar place, which is a CSA-led process, plus more specific terminology for optionality on how to pay for research, but with a greater disclosure burden. Longer term, I think the US will mimic Europe and the UK in those requirements for greater disclosure in exchange for continuing research payment optionality. 

For the moment conversations are almost entirely internal, but there are some outlier firms who are more keen to test the waters on this with their clients. There may be an early adopter group this autumn making changes, and all eyes will be on them to see how they get on!

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A key aspect of the new rules is the allowance of ‘bundling’ of payments for third-party research and trade execution. Prevention of payment bundling was introduced in 2018 under Mifid II due to various concerns, including that it could lead to less disciplined spending on duplicative or low-quality research.

Now, payments would exist alongside those already available, such as payment from an asset manager’s own resources or even a dedicated account.

Read more: A welcome freedom, temporary measure or futile task? The industry reacts to the UK’s new research proposal 

Speaking in an official announcement, Sarah Pritchard, executive director, markets and international at the FCA, said: “High quality, easily accessible investment research is a vital part of a healthy, dynamic capital market. It supports the decisions investors make.

“We are proposing to provide more options on how to pay for such research, helping boost competition and making it easier to buy research across borders.”

The ease of cross-border activity is due to the proposed new plans being compatible with rules governing research payments in certain other major jurisdictions, said the watchdog. 

According to the watchdog these proposals have been developed following feedback from research providers and end investor representatives, as sell- and buy-side firms, the latter of which was gathered via detailed surveys which collected quantitative evidence. 

The analysis showed that asset managers are largely getting the research they need under the current rules, however the FCA added that despite the relative effectiveness of the current set up, it is operationally complex and skewed in favour of larger asset managers, as well as being restrictive to UK asset managers’ ability to buy investment research produced outside their jurisdiction. 

The new rules are therefore set to be more suitable for firms or varying business models and sizes, effectively boosting competition.
  
The consultation is understood to be closely aligned with the Kent review, published by Hogan Lovells lawyer Rachel Kent, who led the UK’s Investment Research Review under the Edinburgh Reforms. 

She published recommendations that the UK government has accepted, which included paving the way for a new ‘Research Platform’ that would provide a one-stop-shop for firms looking for research experts. 

The FCA is set to produce final rules in H1 2024, dependent on the quality of the feedback received.

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Successful applicants to the DSS will  operate under a set of rules and regulations that have been modified to facilitate this.

The DSS is intended to last for five years, after which regulators will be better informed to design a permanent technology friendly regime for the securities market.

Firms that successfully apply to the DSS will be able to manage  the issuance, maintenance and the settlement of financial securities.

The central bank and UK regulator said it will also be possible to combine these activities with that of a trading venue, creating new business models.

The BoE and the FCA have three overarching aims, including: facilitating innovation to promote a safe, sustainable and efficient financial system; protecting financial stability; protecting market integrity and cleanliness.

Examples of financial instruments which could be issued and traded in the DSS include equities, corporate and government bonds, and money market instruments.

“The intention of the Bank and the FCA is that financial market participants, such as companies that use capital markets to raise finance, or participants in financial markets who trade securities, should be able to interact with the firms inside the DSS as normal while benefitting from the new technology,” the pair said in a statement.

“Similarly, unless otherwise specified by the regulators, all financial market participants will be able to use the securities issued in the DSS as they normally would any other security, including in securities financing transactions, or as collateral.”

Derivative contracts based on those securities can also be written, with those activities still being required to comply with the regulations that govern them.

The BoE stated that it will impose limits on the value of securities that can be issued in the DSS to protect financial stability.

The DSS will comprise of varied stages of permitted activity, with a series of gates for sandbox entrants to move through, with permitted activity increasing with each stage.

“The application of new technology such as distributed ledgers could materially improve the efficiency of ‘post-trade’ processes that take place after a trade is executed,” added the BofE and the FCA..

“By making these processes faster and cheaper, the adoption of these technologies could, if successfully implemented, lead to material savings across financial market participants, such as pension funds, investment firms and banks.”

In order to meet the aims of the DSS, while giving fair consideration to the impact of their policy on key stakeholders, the BoE and the FCA have released a consultation paper. The closing date for responses is 29 May 2024.

Following the review period, a formal communication will be issued with final guidance and rules. The DSS is expected to open applications in the summer of 2024.  

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