The Era of Digital Assets Is Set to Begin
Industry enthusiasm for digital assets is on the rise with two thirds of polled market participants telling our survey that there is growing interest in these instruments from their own clients. Moreover, traders are extremely bullish about the potential of digital assets and crypto-products, with 80% predicting that demand will increase in the long term. Critically, market users believe digital assets will help generate cost synergies by streamlining trading and settlement processes and reducing overall trading costs.
These instruments are attracting interest. For example, the Swiss Stock Exchange saw significantly higher trading volumes involving products with crypto currencies as underlyings last year. While overall volumes grew by +8.5% compared to 2018, the increase in crypto products was +17%, reaching CHF 518.2 million. In terms of the number of transactions, there was a year-on-year increase of +21% with 19,636 trades in total. We as a company fully recognise the potential of digital assets, evidenced by our building of SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
Artificial Intelligence to Reshape Trading
According to traders, artificial intelligence (AI) is expected to bring many benefits to market operations. Two thirds of survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect the technology to reduce the cost of trading. Innovation in AI is going to be a key driver helping our industry become more effective at withstanding future risks and challenges presented by the market.
Shorter Trading Hours Are a Winner
In Europe, there is growing momentum behind calls for shorter trading hours, and this is being led by industry groups such as the Investment Association (IA). The IA are advocating for stock market trading hours to be curtailed from 8.5hrs to 6.5hrs so as to make the industry more accessible to women and working parents. We found traders were largely supportive of the initiative, with many saying that it could even facilitate operational benefits. For instance, 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity, although 6% believed it could drive up costs.
As geopolitics increasingly shape wider market sentiment, it was not surprising that four fifths of traders said their strategies are to some extent influenced by Donald Trump’s Twitter activity. Three quarters of traders believe the US election will drive trading activity in 2020 while 65% acknowledged trade wars would also have an impact. Interestingly, Brexit was identified by only 39% of respondents as a factor that would influence trading activity. And finally, traders appear to be rather bearish about the state of the world economy with 58% bracing themselves for a global recession. Nonetheless, 42% of respondents predict macro conditions will be fairly stable over the next three years.
Even though advancements in technologies such as digital assets and AI could bring about sweeping positive changes for the trading community, the market remains bearish on the wider macro outlook.