"FINANCIAL CENTRES: Marketplaces on the move"

Read the full article in The Economist, September 13th 2007.

Excerpts:

• Over the past decade financial exchanges have changed out of all recognition. From Stockholm to Singapore, they have modernised and expanded. Fortunately for investors, most of the changes have been for the better. They have brought more choice, faster trading and greater efficiency. Trading costs have come down, too. This matters to financial centres, because exchanges are still at the heart of the world's financial network.
• Much of the transformation is being driven by the increasing sophistication of investors and financial intermediaries, particularly big investment banks, which direct the bulk of capital flows around the world. (Of course, much of that sophistication is the result of use of computers and communications technology to quickly analyze information and communicate at a distance.)
• As a result, the world's biggest exchanges are vying as never before for a share of highly mobile global capital. Their vast computerised hubs and their ability to zip transactions around the world in split-seconds allow them to play a dual role reminiscent of the marketplaces and sailing ships of medieval times. The most successful are those with attractive goods on offer, competitive prices and speedy response times.
• Given the rise of electronic trading, exchanges may have become more virtual than physical marketplaces, but the broader impact of exchanges on cities—their “multiplier effect”—keeps on growing. An official at the London Stock Exchange notes that although its total listing fees (as opposed to trading fees) in the past financial year were a relatively puny £28m ($56m), fees generated by advisers to new companies on the exchange—lawyers, investment bankers, accountants, public-relations firms and so on—were estimated at £3.5 billion.
• John Thain, head of the New York Stock Exchange, notes three key trends in the evolution of modern exchanges: demutualisation, diversification and globalisation. These are already having a profound effect on the global financial system—and are linking financial centres more closely together than ever before.

Comment: Here we have another example of the digital divide, where it really counts. The ICT intensive centers of world finance, located in developed and a few emerging economies, are reaping huge benefits from the globalization of finance. JAD