December 07, 2012

Capital markets technology provider Progress Software predicts that in 2013, London will be a major beneficiary of tighter regulations in the European Union, and that high-frequency traders will wage a public relations offensive to boost their relatively poor image.

Knight Capital earned the unfortunate distinction of fulfilling one of Progress Software's predictions for 2012. Last year Progress predicted that a trading firm would lose $1 billion due to an algorithm gone wild. Knight's immediate losses were $440 million, but Progress says that figure grew to nearly $1 billion when accounting for losses through trading and market capitalization.

As for next year, the firm said that the financial transactions tax in Europe and tighter regulations in the U.S. and Asia will drive capital markets firms to London, which will become the European equivalent of the Cayman Islands.

"London will become the new Cayman Islands, attracting trading firms and hedge funds from more restrictive regimes," Progress chief technology officer John Bates said in a statement. "With no transaction tax and its lighter-touch regulation, London will grow its pole position as the financial services capital of the world."

In addition, high-frequency traders will look to create positive PR and heavyweight lobbying groups to counter the blame they've received in light of events such as the 2010 flash crash.

Progress also predicts that a new generation of software to monitor trading algorithms will grow in popularity next year. The firm likens such software to the technological equivalent of grade school hall monitors.

"Like a hall monitor at school, algorithms will lurk and jump on troublemakers," Bates said. "They will take the virtual bullies to the principal's office and punish them."

The company's last two predictions for 2013 are that the next whistleblower payment will be a Power Ball-sized $200 million after a capital markets 'supergrass' brings down a would-be financial markets criminal. It also predicted that Russian bonds will be a hot item, and that investors will be clamoring for electronic trading systems to trade them.

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced ...