Navigating Turbulent Markets and Leveraging Advancing Technology to Enhance the Resiliency of the Capital Markets

Amid the war in Ukraine, rising inflation, spiking commodities and the Federal Reserve raising rates, the markets are experiencing heightened volatility. However, as more exchanges leverage advancing technology, the markets remain resilient during these turbulent times.

At the FIA Boca conference in Florida, leaders from major exchange groups around the world discussed the current challenges and opportunities for exchange-traded markets, as well as the role of their respective organizations in the coming years. Nasdaq Executive Vice President and Head of North American Markets Tal Cohen joined this esteemed panel, highlighting how Nasdaq is leveraging the cloud to transform the capital markets of tomorrow while also acknowledging the significant macro headwinds for global markets.

Presently, there are several crosscurrents that the markets are facing—from economics and geopolitics to interest rates, inflation and the need to be cyber-vigilant. Cohen also noted that the markets are dealing with cyclical and structural issues this year, with a tight labor market and supply chain challenges, both of which are contributing to inflationary pressures. Those pressures are then creating uncertainty around the pace and rate of monetary policy adjustments.

Importantly, the Fed raised interest rates by 0.25%, or 25 basis points, marking its first interest rate increase in more than three years. The Federal Open Market Committee (FOMC) also signaled six more increases throughout the rest of the year, indicating a consensus funds rate of 1.9% by year’s end. However, the FOMC noted in a statement that the invasion of Ukraine by Russia is causing “tremendous human and economic hardship,” adding that the implications for the U.S. economy are highly uncertain. 

“We are attentive to the risks of further upward pressure on inflation and inflation expectations,” Fed Chair Jerome Powell said during a news conference on Wednesday. “The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy.”

While Cohen said that his overall outlook remains positive, he expects the confluence of market-driven factors, including macroeconomic and geopolitical, to continue to drive volatility over the near term. Notably, Cohen said that he has seen significantly higher trading volumes this year, and within the last week, Nasdaq processed a new record number of messages in a single trading day, topping the record reached during the early onset of the coronavirus pandemic. This has only reinforced Cohen’s confidence in the strength and resilience of Nasdaq’s business.

Over the past several years, Nasdaq actively worked to diversify its business, creating a flywheel effect between its foundational U.S. and European marketplaces and its technology solutions that power more than 100 market infrastructure operators around the world. This transformation has proved critically important during periods of heightened market turbulence, enabling Nasdaq to help asset owners rebalance their portfolios and manage asset allocation decisions, support banks and brokers to prevent financial crime while managing increased investor activity, and empower global exchanges to handle market volumes and volatility.

Earlier this year, Nasdaq announced a multi-year partnership with Amazon Web Services (AWS) to build the next generation of cloud-enabled infrastructure for capital markets. The partnership will enable the migration of Nasdaq’s North American markets to the AWS cloud, beginning this year with MRX, one of Nasdaq’s U.S. options markets.

“What you’ll find is that the markets are going to work better in the future for you and for investors,” Cohen said at the time of the announcement. “Nasdaq’s journey to the cloud started approximately a decade ago, and over that period of time, we’ve gained experience and understanding of the benefits of the cloud, which include flexibility, scalability, resiliency and security.”