Risk management will remain top of mind in 2024 as financial markets continue to grapple with macroeconomic, geopolitical and regulatory uncertainties that are lifting capital costs.
"We continue to be in an age of uncertainty with respect to risk management,” said Tim McCourt, CME Group Global Head of Financial Products. “The need for clients to manage their risk is only increasing as is the cost of not hedging."
McCourt spoke with Kevin McPartland of Coalition Greenwich for an OpenMarkets Exchange of Ideas interview looking at the market events that will shape 2024.
Investors are increasingly concerned that rising capital costs coupled with upcoming regulatory reforms could fuel market headwinds next year, added McCourt.
Lingering Risks
McPartland says some of the 'tail risks' that were present in 2023, such as political turbulence and bank troubles, will remain a concern in 2024. However, he mentioned Basel III's endgame rules toughening banks' capital requirements will also raise liquidity costs, especially for buy-side firms, complicating the operational and clearing landscape.
Against this backdrop, clearing will become a big deal in the next 12 months, McPartland stressed.
"We are certainly thinking about clearing a lot," he noted. "Treasury clearing will be on the table as will repo clearing and more FX clearing given the costs of capital. And uncleared margin rules (UMR) in general will also push clearing even across heavily cleared products on the fixed-income side."
AI and Crypto
Artificial Intelligence (AI) will also continue to gain traction as an innovative technology and affect market dynamics, says McPartland.
"I believe in the impact of AI more than I have in some of the other buzzy tech that has come to mark the past 10 years," added McPartland. "One of the things that I like about AI is that it feels very hands-on. You type a sentence in plain English and can get the same or even better results than you normally would from an advanced Google search where you have to do more, such as click boxes and add filters, to do a search. In a way, AI is bringing us back to the early computer days of simple command lines."
McPartland also expressed optimism for crypto assets, noting that much of the fallout from the collapse of FTX is now in the rearview mirror.
"We came into 2023 just having found out about FTX which was very negative in the short term for that market," he recalled. "But it does feel like we have washed out everything that really wasn't fit for the long-term purpose and what is now left is a core infrastructure where there's a lot of room for growth."
Watch McCourt and McPartland’s full discussion above.
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