Trading on Alternative Systems: The Rise of Non-Traditional Markets

In the ever-evolving landscape of financial markets, alternative trading systems (ATSs) have emerged as a significant player, offering a platform for traders to execute trades outside the traditional exchanges. This article delves into the latest trends and data surrounding ATSs, highlighting their growing importance in the financial sector.

The Prevalence of ATSs

Since 2016, ATSs have been required to flag inter-dealer trades executed on their platforms. This requirement has enabled market participants to easily identify and analyze these transactions, revealing the crucial role ATSs play in the inter-dealer market. As of June 2022, ATSs accounted for 55% of all inter-dealer trades, a figure that has remained relatively steady over the past few years.

Customer Transactions with ATSs

Beyond their dominance in inter-dealer trades, ATSs are also experiencing a surge in popularity among customers. This growth is evident in the rising number of customer transactions occurring on ATS platforms. In the first half of 2022, customer transactions with ATSs grew dramatically, reaching 12.4% of all customer trades, up from a mere 2.9% in 2015.

Market Share and Growth of Alternative Data

This growth in ATS activity is mirrored in the broader expansion of the alternative data market. This market, encompassing various non-traditional data sources, is experiencing explosive growth. Valued at USD 7.16 billion in 2023, the global alternative data market is projected to reach USD 271.49 billion by 2032, with a compound annual growth rate (CAGR) of 49.8%. This expansion is driven by the increasing demand for unique insights and competitive advantages across various industries.

Key Drivers of Growth

Several factors contribute to the rapid growth of alternative data markets. The proliferation of non-traditional data sources such as social media sentiment analysis, satellite imagery, and IoT sensor data provides a more dynamic and granular view of businesses and markets. Furthermore, the widespread adoption of digital payment methods generates a vast volume of transaction data daily, offering valuable insights into consumer behavior and economic trends.

Market Segmentation

The alternative data market is segmented by industry, data type, end user, and region. Hedge fund operators have emerged as the leading contributors to the global alternative data market revenue, leveraging alternative data to enhance their investment strategies and generate alpha. Investment institutions and retail companies are also significant users of alternative data, driven by the need to gain a competitive edge in their respective markets.

Regional Trends

Geographically, the adoption of alternative data varies. North America dominates the market, accounting for about 57% of global revenue in 2023. The region's high share is attributed to the presence of numerous players and early adoption of alternative data from various industry verticals. Europe and Asia Pacific are also significant contributors, driven by substantial assets under management and rapid economic growth.

Conclusion

The rise of alternative trading systems and the broader alternative data market reflects a shift towards more dynamic and granular forms of financial data. With the global market for alternative data providers expected to reach USD 137 billion by 2030, growing at a CAGR of 53%, incorporating these non-traditional data sources into investment decision processes will become increasingly crucial for financial institutions seeking to stay ahead in the competitive landscape of modern finance.

Trading on alternative systems is not just a trend; it is a strategic imperative for financial institutions aiming to harness the full potential of the vast repository of alternative data available. As the market continues to evolve, traders and investors must stay informed about the latest developments and trends in this rapidly expanding sector.