Intense Competition Between Markets

The past decade has seen a major change in the securities trading industry, driven partly by rapid technological innovation and the globalization of finance. One effect has been a significant decline in trading costs – which has reduced the costs of raising equity capital and has provided an incentive to shift issuance and trading activity to lower-cost centres. This process has put immense pressure on exchanges in emerging markets and smaller mature markets to consolidate liberalize access and deregulate brokerage commissions to maintain competitiveness. The need to concentrate trading activity in order to achieve the necessary depth and liquidity has only added to the intensity of competition. In addition to providing pressure to integrate exchanges within national markets, these forces also create an incentive for cross-border alliances among exchanges and the formation of regional markets. The effects of these forces have been particularly evident in Asian countries, where stock and derivative exchanges have merged and de - mutualised in Hong Kong, and in Singapore. Malaysia is following a two-stage approach, to allow the industry time to adapt to the change, while in Hong Kong, commissions are due to be liberalized this year. Another effect of the intense competition has been the tendency for certain markets to specialize as a way of attracting sufficient business to achieve the scale of operations needed to build liquidity and reap cost advantages. Singapore, for example, has sought to implement a strategy of fostering the development of asset management activities. Australia has seen substantial growth in foreign exchange business in the past three years, in marked contrast to the general trend recorded in the BIS-coordinated triennial survey of a marked worldwide decline in daily turnover. The reason has been that a number of global players have focused their Asian time zone business in Australia. As a result, daily turnover in US$/third currency business has grown to the point where it is almost equal in volume to US$/A$ turnover. This growth has added substantial depth and vibrancy to the local financial community.