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'The year of digital is upon us:' Bitcoin, political gridlock, and big data are set to transform markets in 2018 by Kevin McPartland, Greenwich Associates on Jan 4, 2018, 5:08 PM 
- Kevin McPartland, the head of research for market structure and technology at Greenwich Associates, a consultancy, outlined the ten trends that'll define markets in 2018.
- According to McPartland, 2018 will be the year in which digital descends upon the markets.
- He sees banks paying more attention to crypto, data becoming more important, and more regulatory changes.
2017 was politically strange, economically strong and eerily calm. President Trump attempted to govern the U.S. in ways never before seen and often hard to imagine. Britain seemed to second-guess their choice to leave the EU while carrying on negotiating the exit. Asset prices around the world continued to rise, prompting bubble fears despite generally supportive fundamentals (for those assets with fundamentals, unlike Bitcoin).
Even with the first real nuclear threat since the Cold War, markets have remained oddly calm, with volatility and volume remaining depressingly low,particularly for those who make money only when markets move. Heading into 2018, dreams of volatility will continue, and watching interest rates rise will be like watching grass grow. While both will be key factors on every market participant’s dashboard, neither is really a trend—just business as usual. Regulatory change will enter the spotlight again this year, and the importance of data and analytics will be highlighted along with it. Both will impact trading venues, investors, dealers, and those that support them. With that, these are our top 10 market structure trends to watch in 2018: Regulators get things done, Congress does not  Despite high expectations and lots of promises, Congress has yet to deliver much meaningful change. While the President and the congressional majority are of the same party on paper, interpretations of the details have made consensus elusive. The same dynamics make it hard to predict if Congress will enact any meaningful capital markets legislation, especially given the higher priority of health care and immigration reform. However, many changes proposed by the U.S. Treasury do not require Congress, and with the CFTC and SEC working their way back up to full staff, real change by the end of this year is likely. The usual process of comment periods and Federal Register publishing will still be required, but by the end of 2018, the world of swaps trading will shed some overly prescriptive rules, while equities markets will see some unproductive rules unwound.
MiFID II soft launches  You’re probably thinking, “It’s not a soft launch—MiFID II is the law of the land now!” That is technically true, of course. And for better or worse, even though the SEC has provided U.S. firms with “no-action relief” from some European rules, Europe’s regulators don’t have the no-action relief lever that U.S. regulators became so fond of using as they implemented Dodd-Frank. However, MiFID II is so wide-reaching and impactful, it is unreasonable to think European regulators can or will crack down on imperfect compliance as the year gets underway. That is not to imply the majority of market participants, especially if measured by the appropriate market-share statistics, won’t be ready to go. The potential for a public-relations headache is enough to motivate true best-efforts compliance. But we should expect some short-term hiccups that include some counterparties not interacting with one another because of incomplete processes or legal work, non-European firms opting to interact with other non-European firms, and manual work-arounds involving junior staff where technology isn’t yet built. Unfortunately for compliance operations and technology teams, more late nights are still to come, as they work to transform the current “Let’s make sure we’re compliant” implementations into permanent, enterprise-grade installations.
Active investing is still huge, but passive keeps growing  Over three-quarters of investable assets are still with active managers, equal to $30 trillion. Beating the market is hard, but investors continue to vote with their portfolios, offering active managers the chance to try. However, the $4 trillion in passively managed funds today would have all been with those active managers not too many years ago, and the money seems to be flowing in only one direction. There is a limit here. If enough money passively tracks a set of indices, then the opportunities for alpha in active management will become too hard to resist and a balance will be struck. However, Greenwich Associates research in 2017 found that most portfolio managers see 40% of assets in passive as the limit, compared to today’s 22%—that is a huge opportunity for growth. Lastly, passive investing is somewhat of a misnomer. Truly passive portfolios wouldn’t need fund managers, which clearly isn’t the case. While reducing tracking error isn’t stock picking, it is a pretty marketable job skill nonetheless.
See the rest of the story at Business Insider
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