2. With all this bickering, however, the US economy will continue to heat up, helping the market more than recover – 2013 will turn out to be a good year for US equities. The S&P will return better than 10%.

3. Interest rates will stay low throughout year, helping to drive the real estate market and the economy. But as the real estate market picks up and employment rebounds a bit, interest rates will begin to edge up toward the end of the year. This will make the debt issue more pronounced.

4. Europe will continue to struggle. The euro as a currency will hold, but a struggling Europe will continue to be a drag on European equity performance, which will be weaker than the US markets but much stronger than in 2012. Meanwhile, Asia will outperform both the US and Europe.

Market Structure

5. HFT issues will begin to fade away as the SEC continues to focus on enforcement and pressures exchanges and HFT firms over order types, but they will come back when -- even though limit up/limit down finally gets implemented -- there is another major glitch in the market driven by technology/market structure.

[Related: "Why HFTs Have an Advantage"]

6. While HFT issues will fade for a while, market structure pressures won’t; however, the story changes from speed to transparency as pressure against dark pools intensifies and the trade-at rule becomes a larger issue. At the end of the day, however, nothing happens to hamper HFT or dark pools in 2013. Internalization and dark trading will continue to drift northward, from about 33% to about 35% or 36% by the end of the year.

Regulation

7. Swaps clearing will finally gain traction. Buy-side clearing rates will skyrocket to 35%.

8. The Volcker Rule is re-proposed, and instead of the banks being able to weaken the rule, it will be re-proposed harder and stronger than the last attempt, driven by the London Whale, Libor scandals, money laundering, and insider trading debacles.

9. Basel III will be implemented as proposed – without being watered down. There will be little if any rollback of the Liquidity Capital Rule, which forces banks to have 30 days of capital on hand or, in very liquid securities (Govvies), to withstand a modern day run (the pulling of Repo lines).

Industry

10. Industry economics will remain challenged, especially for the first half to three-quarters of the year. Challenging economics will force banks/brokers to continue to shrink. Besides the trimming that we have seen over the past few years, two significant players will retreat and/or consolidate out of the market.

11. Basel III and the Volcker Rule will continue to pressure bank balance sheets, and the top 10 largest banks will collectively have a smaller balance sheet at the end of 2013 than they do at the end of 2012.

Equities

12. Volumes will hit their lows in the first half of the year and start rebounding as we start seeing year-on-year volume increases in the third or fourth quarter.

13. The IPO market will begin to heat up – but in more of a PE exit way than in a behemoth Facebook way. There will be more IPOs, but they will be, on average, smaller than in 2012. That said, IPOs for smaller firms will continue to be challenging. The SEC will continue to drag its feet on the JOBS Act, and the anticipated explosion of crowdsourcing will not occur in 2013.

14. Equity fragmentation will get a little better, but not because the SEC acts. Fragmentation will decline mostly from attrition. We will wind up with fewer exchanges and registered equity ATSs at the end of 2013 than we opened the year with.

Fixed Income

15. Swap futures will gain steam and become the latest hot product. This does not, however, kill the traditional swaps market; swap futures will not gain more than 3% to 5% open interest in 2013.

16. Facing smaller balance sheets and greater regulatory burdens, banks will support electronic fixed income trading platforms. The increasing use of electronic fixed income platforms will help a number of platforms – the rising tide will lift models that can link buy-side firms with buy-side firms, either through back-to-back transactions or via bid-offer markets. The transaction volume executed by fixed income electronic trading platforms will double.  

[Related: “Fixed Income 2013: Liquidity, Products, Platforms”]

Exchange-Traded Derivatives

17. Stagnating volatility will impact 2013 listed options volumes, although total volume for the year will see marginal increases. The dividend trade will finally see an end as PHLX ultimately caves to industry pressure and changes its rules to make the trades uneconomical with respect to fees and assumed risk.

18. The launch of mini options on the most popular retail symbols will see immediate success and add to market volumes. Look for the list of names in the program to quickly expand as exchanges seek to appeal to retail accounts that will drive volumes.            

19. The NYSE Euronext/ICE merger will be approved and will introduce new competition into US listed futures trading. The combined exchange will quickly target the interest rate markets to leverage its international presence into domestic US markets.

[Related: “It May Be ‘Bye-Bye to the Big Board,’ But the NY Times Should Get Its Story Right”] 

20. The economic recovery, rising equity valuations and an uptick in inflation will drive trading in the equity and interest rate segments, with total futures volume growing by at least 10% for the year.