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Sol Steinberg, Tabb Forum, Unwinding the Volcker Rule: from Confusion to Threats and Opportunities, here. Sol Steinberg++.

The fundamental issue is that liquidity is still necessary. Buy-side firms are starting to rely on each other for liquidity sources via peer-to-peer trading platforms. This is an opportunity for vendors. Vendor firms can start to understand the liquidity needs of this market segment by interviewing asset management firms. Upon completion of their market research, vendors can create new trading platforms and strengthen present ones to allow buy-side participants to connect with each other within shorter time frames. Designated software should be able to match buyers and sellers nearly instantaneously.

Asset managers may also start sourcing liquidity from non-US instruments. Vendors can seize the moment by constructing new platforms that enable buy-side participants to access financial securities outside of US borders.

All the while, anonymity will remain essential. A buy-side participant may want to purchase a large block of a security without anyone knowing. If opportunistic traders learn about the aforementioned purchase, they may seek to profit off the price momentum. This issue becomes more problematic in the FX markets because of the dynamic nature of FX prices. Vendors that are able to anonymously facilitate block orders will be able to gain market share and credibility among the buy-side segmentation.

The combination of the Volcker Rule and hedge accounting will further transfer proprietary trading to the shadow banking sector. However, buy-side participants will need liquidity as the details of the Volcker Rule are ironed out and future legislation looms. Vendors can help asset management firms and even partner with them to facilitate satisfying their liquidity needs.


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