As we approach ringing in the new year with anxiety about the Omicron variant, inflation and market turbulence, it’s easy to see why investors are jittery about portfolios holding their nest eggs. Wild volatility gripped the stock market and raced up and down like a roller coaster this December. And digital assets have seen even greater swings this year, with Bitcoin trading at $68,000 in early November to now hovering around $47,000.
With retail investor participation at all-time highs of 25 percent of daily stock market trading volume, it is more important than ever that investors leverage the benefits of technological innovation to carry them through uncertain and volatile times. We do not know how long Omicron and other variants are here to stay (or which new variants may emerge), or the extent to which skyrocketing inflation and interest rate increases may upend markets, but one thing is clear: one important market player — automated traders also known as HFTs – high frequency traders— play a big role in providing dependable liquidity in these uncertain times.
Against this backdrop, below are three fintech trends to watch that will shape the markets in 2022:
1. Increased Demand for Dependable Liquidity--- Amid price swings and gyrating markets, it is of paramount importance for there to be liquidity in the markets to ensure that retail investors have the ability to buy or sell regardless of market environment. When investors want to sell, it is an imperative that they can get out of a position, and vice versa.
As we saw earlier this year when Robinhood platform shut downthe ability of investors to buy or sell certain stocks such as GameStop for a prolonged period, investors suffered from the inability to get in or out of their positions. When there is growing volatility, we will see an increased demand for electronic intermediaries, such as automated trading firms, to supply liquidity and ensure that investors have the ability to transact purchases or sales of stocks.
2. Further Democratization of the Markets – Low-cost trading technology and zero-commissions have opened the doors to new demographics of investors. Today, almost one-third of adults have brokerage accounts outside their retirement savings, with the majority of newly opened accounts having a balance less than $2,000 and with “ability to invest a small amount” and “recommendation of a friend” among the top reasons for new investing participants. There is room for optimism that low-cost trading technology is helping increase participation beyond the traditional investor, as record numbers of women and minoritiesare opening retail investing accounts.
3. RegTech growth to accelerate and police for bad actors - With so many retail investors participating in the markets, it is more important than ever for market participants to leverage developments in regulatory technology – “RegTech” — including algorithms and artificial intelligence — to help surveille the markets to the benefit of retail investors.
The global RegTech market is anticipated to continue to grow, from $5.4 billion in 2019 to $28.3 billion in 2027, reducing threats such as cyberattacks, security breaches, and money laundering. RegTech is a tool for brokers managing retail accounts to use to detect potential fraud and abuse in the markets and to raise the bar on the ability to enforce regulatory requirements.
In the year ahead, look for the Securities and Exchange Commission and Commodities Futures Trading Commission to continue shifting more resources to technology. Agency leaders will also continue ask Congress to authorize more funds for tech improvements to keep pace with the private sector.
Further efficiencies will continue at a fast pace in the year ahead as more human intermediaries are displaced by automated trading firms as market makers. These electronic, cost-effective intermediaries can perform the function at a fraction of the cost while adding efficiencies and collectively saving investors billions of dollars.
With further deployment of technology and financial literacy education, there is room for further democratization of the markets and broad adoption of technology for long-term savings.