2024: A year of change in global capital markets

Key Takeaways

• Emerging markets are benefiting from search for liquidity.
• Shorter settlement cycles, regulatory changes are challenges.
• Technology and partnerships are key to success.

The global capital markets have seen rapid changes and significant developments in 2024. This blog post explores some of the key factors that have shaped the landscape over the past year.

Global expansion

In 2024, firms continued to seek liquidity in more markets worldwide, driven by the growing size and sophistication of emerging markets. Countries like India, Brazil, Vietnam, and the Philippines became ever-more attractive destinations for investment due to their robust economic growth and improving market infrastructure. Government policy changes aimed at expanding capital markets and attracting direct investment also generated interest from international investors and drove growing trading volumes.

Firms are diversifying their portfolios by investing in these emerging markets to spread risk and capitalize on growth opportunities. This diversification helps mitigate the impact of economic downturns in any single market. For instance, during periods of volatility in developed markets, investments in emerging markets can provide a buffer and potentially higher returns.

Technological advancements also drove global expansion. Trading venues around the world continued the drive to adopt standardized technology platforms, reducing the barriers to entry for investors.

Shorter settlement

A significant trend in 2024 has been the move towards shorter settlement cycles. The Americas transitioned to a T+1 settlement cycle, meaning trades are now settled one day after the transaction. In India, plans to adopt same-day settlement continued apace.

One of the primary benefits of shorter settlement cycles is the reduction in counterparty risk. By decreasing the time between trade execution and settlement, the risk that one party to a transaction will default before the trade is completed is significantly lowered. Shorter settlement cycles can increase market liquidity, as investors can reinvest more quickly.

Another advantage is the potential for lower margin requirements. With trades settling faster, the need for margin to cover potential losses is reduced, which can lower the cost of trading for market participants and make the markets more efficient. Furthermore, shorter settlement cycles encourage the adoption of more efficient and automated processes, leading to cost savings and improved accuracy in trade processing.

However, these benefits have come with challenges. Brokers and other market participants need to invest in significant system upgrades to handle the accelerated timelines. This includes enhancing their IT infrastructure and automating more of their processes. The shorter time frame for settlement also increases the likelihood of settlement failures, as there is less time to resolve any issues that arise, potentially leading to higher penalties and operational risks.

For global firms, coordinating settlements across different time zones has been a growing challenge this year. Shorter settlement requires more precise timing and coordination, which can be difficult to manage. Ensuring compliance with different regulatory requirements across jurisdictions has become more complex as settlement cycles have shortened, and it’s more important than ever for firms to stay updated with the latest regulations and ensure their processes are compliant. Monitoring and managing operational risk have become more important than ever, as there is less time to identify and correct errors.

Regulation

Regulatory changes continued to shape the global capital markets this year, with significant recent developments in both the Consolidated Audit Trail (CAT) and the Markets in Financial Instruments Directive II (MiFID II).

The CAT, designed to enhance market transparency and oversight in the US, has seen notable updates in 2024. The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have introduced new reporting requirements aimed at improving data accuracy and timeliness. These updates are part of a broader effort to ensure that the CAT can effectively monitor trading activities and detect market manipulation. Looking ahead to 2025, further CAT reporting requirements will come into force, presenting new challenges to the industry.

In Europe, the MiFID II regulations are undergoing a comprehensive review. The revised MiFID II and MiFIR texts were adopted in early 2024, with significant amendments aimed at increasing market transparency and investor protection. These changes include stricter reporting requirements and enhanced oversight of over-the-counter (OTC) transactions. The transposition deadline for these amendments is set for September 2025, giving firms an 18-month window to comply.

For firms operating globally, staying compliant with these evolving regulations became ever more complex and resource-intensive in 2024. The need for robust compliance frameworks and continuous monitoring is more critical than ever. By partnering with experienced global firms, market participants can better navigate these regulatory changes and ensure adherence to the latest standards.

Technological innovation

Technological advancements were at the forefront of market evolution this year. Exchanges around the world implemented major tech upgrades to enhance efficiency and security. Euronext rolled out a new trading platform, promising faster execution times. The Tokyo Stock Exchange upgraded its systems to support higher trading volumes and improve resilience. Meanwhile, the Thai exchange introduced blockchain technology to streamline settlement processes.

Exchanges also looked to adopt cloud computing infrastructure. Moving systems to the cloud can potentially deliver a range of benefits, including reduced costs and improved latency. By offering the ability to rapidly scale and add capacity, cloud infrastructure can also empower innovation in other areas, such as artificial intelligence. Throughout 2024 market participants have had to invest time and resources to ensure they can take advantage of the latest developments from exchanges and stay competitive.

Agility is key to success

The rapid pace of change and development in global capital markets has only accelerated in 2024. Brokers and other market participants have had to navigate shorter settlement cycles, evolving regulations, and technological innovations. And there is every sign that this will continue in the year to come. As always, the keys to thriving in this dynamic environment are staying informed and agile, and choosing experienced global partners. With expertise, resources and adaptability, market participants can position themselves for success.