Securities sector faces a mixed 2023: Fitch

Despite the volatility and uncertainty hanging over global financial markets, the outlook for both North American and European securities firms remains neutral for 2023, says Fitch Ratings.

In a new report, the rating agency said that the sector’s strong capital position and robust liquidity will help offset the negative effects of rising interest rates and elevated macroeconomic uncertainty.

“Securities firms will face profitability headwinds in 2023 as investment banking activity will likely be suppressed given elevated global recession risks and market volatility,” said Bain Rumohr, senior director with Fitch, in a release.

“Still, elevated trading activity and higher rates should support volumes and overall operating performance of the sector, which should allow firms to maintain appropriate leverage and liquidity profiles next year,” he added.

Indeed, the report said that ongoing global market volatility and interest rate volatility could bolster trading activity among broker dealers in the year ahead.

These elevated trading volumes — along with ongoing technological shifts and asset price volatility — could cause operational challenges for securities firms in 2023, Fitch said.

However, the recent turmoil in the crypto sector should have limited direct effects on securities firms, it said, “given such activities are largely confined to small and/or ring-fenced activities at high frequency trading firms.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.