capital markets
of the 21st century
ISBN 2-907587-08-0
Capital Markets are at the epicenter of the shock-wave of globalization. They are often assumed to have become borderless, to operate seamlessly, above and beyond the reach of national control. The market reality is far more complex.
This book gives the floor to eminent practitioners – in “strategic conversations” as well as through a Survey of Market Practitioners – to assess how markets react to the triple challenge they face today: the challenge of technology, the challenge of good governance and regulation, the challenge of different market cultures. This year’s emphasis is on market infrastructures and the consolidation of Central Securities Depositories (CSDs) in Europe and on the opening of the Chinese capital markets as China joins WTO.
This exploration is the second stage of a process that began in 2000 with the book Capital Markets without Borders in synergy with the annual conferences on Capital Markets without Borders convened by the Edmond Israel Foundation in Paris (2000) and London (2001).
Outline
Introduction by André Lussi, Chairman, Edmond Israel Foundation
Part I. ANNUAL CONFERENCE PROCESS:
THE TRIPLE CHALLENGE OF TECHNOLOGY, REGULATION AND MARKET CULTURE
The technology challenge
I. Embracing, but risk-managing, our differences:
the DTCC perspective on capital markets without borders
Jill M. CONSIDINE, Chairman and CEO, the Depository Trust and Clearing Corporation, New York.
The regulatory challenge
II. International financial reforms and the global agenda for good governance
Jean-Claude TRICHET, Governor of Banque de France, and member of the Governing Council, European Central Bank.
The challenge of meeting market participants’ needs
III.Efficient markets in Europe for the 21st century
Sir David WALKER, Chairman, Morgan Stanley Dean Witter Europe.
Part II. ANNUAL SURVEY OF MARKET PRACTITIONERS
The Advisory Board *
I. Introductory remarks:
a global issuer’s perspective on the state of cross-border finance
René KARSENTI, Director General Finance, European Investment Bank (EIB) and Chairman of the Advisory Board for the Survey of Market Practitioners.
II. From globalization to cross-market integration: the survey’s design
Albert BRESSAND and Catherine DISTLER, PROMETHEE.
III. Survey results * and insights from market practitioners
presented by the PROMETHEE research team:
Florian BRESSAND, Alexis GIBERGUES and Thomas RENAUD
including strategic insights from:
Marco BAGGIOLI, Director of Sales, Merrill Lynch, London,
on Key obstacles to cross-market integration
Pavan SAHGAL, Editor, Global Investment Technology, New York,
on Wiring for a Brave New World
Francis REMACLE, Member of the Executive Committee, SWIFT,
on Open standards for global securities
François VEVERKA, Executive Managing Director, Standard & Poor’s Europe.
on Common ratings, uncommon laws
Olivier LEFEBVRE, Secretary General, Euronext,
on “Single passport” for exchanges
Didier DAVYDOFF, Managing Director, Observatoire de l’Epargne Européenne, Paris,
on The emergence of a European savings model
Yves FRANCHET, Director General, Eurostat,
on Statistics without borders, The elusive quest for market-relevant statistics, Quality and timeliness of information
Part III. ANNUAL FOCUS: THE WAY FORWARD FOR MARKET ORGANIZATIONS IN EUROPE
I. How competition and consolidation can foster 21st century market infrastructures
Robert R. DOUGLASS, Chairman of the Board of Directors, Clearstream International.
II. Market infrastructures: the Italian perspective on European consolidation after the euro
Enrico CERVONE, Chairman, Monte Titoli.
III.Consolidating markets: the true cost-benefit analysis
Iain SAVILLE, CEO, CrestCo.
IV. Competition, an opportunity not a threat: the continental market model and the “Latibex connection”
Antonio J. ZOIDO, Chairman and CEO, Bolsa de Madrid, Chairman, FIBV.
V. Toward unbiased exchange feeds: what market structure for market infrastructures?
Pierre FRANCOTTE, Chief Executive Officer, Euroclear Bank.
VI. Keynote perspective: The Financial Services Action Plan and the Wise Men Group’s report: the road ahead for Europe
Frederik BOLKESTEIN, EU Commissioner, Internal Market.
Part IV. REGION OF THE YEAR: CHINA’S CAPITAL MARKETS READYING FOR GLOBALIZATION
I.Currency regimes and legal obstacles to market integration in Asia: a view from Hong Kong
Guonan MA, Vice President, Head of North Asia Economics, Merrill Lynch.
II.Barriers to cross-border capital flows inside Asia
William H. OVERHOLT, Executive Director, Head Asia Macro research, Nomura.
III. East Asian capital markets can gain from some restrictions to capital flows!
Raymond FOO, Deputy Managing Director, Regional Strategist, BNP Paribas Peregrine.
IV.Preparing for the progressive opening of Chinese financial markets
David K.P. LI, Chairman, The Bank of East Asia.
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Quotes
Part I. THE TRIPLE CHALLENGE OF TECHNOLOGY, REGULATION AND MARKET CULTURE“Technology is the powerful engine driving us toward global capital markets…It is the impact of technology on our industry’s emerging global structures, coupled with the velocity of technological change and the management of risk in this new environment, that I believe merits more exploration.”
Jill M. Considine
“Technology will reshape the way we structure and govern our industry institutions just as much as regulatory policy, market culture and economics have shaped them today.”
Jill M. Considine
“The principle that the private sector should be more systemically and directly involved in the prevention and resolution of financial crises is broadly shared by the international financial community. The main objective of private sector involvement is to avoid moral hazard and other distortions in the functioning of international financial markets and to facilitate more orderly adjustments in case of crisis.”
Jean-Claude Trichet
“It is important that the consolidation process be horizontal rather than vertical. The difficulty with vertical structures is that… they risk encouraging continued fragmentation of the netting and settlement process and depriving the whole market of the advantage of maximum scale and related efficiencies. This is why most if not all intermediary firms wish to see horizontal, open-to-all clearing and settlement
structures.”
Sir David Walker
“The creation of a pan-European central counterparty is in my view of such priority that the public interest in maximizing the netting process outweighs the private advantage of competition.”
Sir David Walker
Part III. THE WAY FORWARD FOR MARKET ORGANIZATIONS IN EUROPE
“It will be a long time before we see the demise of the conventional regulated exchanges but […] competition and market forces will change significantly the way exchanges operate.”
Robert R. Douglass
“We believe in open systems that intermediaries, including broker-dealers, can all use on a freedom of choice basis.”
Enrico Cervone
“By linking CCPs the market could greatly reduce their cross-border settlement costs, simply by removing the need for that settlement! Let the CCPs undertake the cross-border movements on a net basis at the end of the day.”
Iain Saville
“Market policies, in my view, should worry first and foremost about the quality and credibility of price
formation. […] Market fragmentation is clearly a very critical concern.”
Antonio Zoido
“When the exchange only has one feed to clearing and settlement, and when this feed leads to the local CSD, that prohibits competition…”
Pierre Francotte
“The EU has opened up it markets because it recognises the benefits which come from doing so. The U.S. needs to reciprocate. There are far too many remaining barriers to EU companies, investors, and infrastructure providers.”
Commissioner Frederik Bolkestein
Part IV. CHINA’S CAPITAL MARKETS READYING FOR GLOBALIZATION
“The first big obstacle one can see here is one barely mentioned in your survey, namely currency regimes. Currency regimes in Asia differ from one country to the other and affect local markets very strongly. Start from here: the fact that Hong Kong operates a currency board is clearly an essential, defining feature of its market.
[…]A second very significant barrier is that the regulatory regimes are very different from one Asian country to the other. Third, the banking sectors of these countries are also very different in structure and it affects the stock markets. Last but not least, various capital controls exist in every country including Japan with Hong Kong being the only full exception.”
Guonan Ma
“The step-by-step approach is clearly what Chinese authorities are in favor of. International organizations and investors tend to lament this attitude, yet it must be acknowledged that there is nothing in American
history that compares with the pace of liberalization
in China today.”
William H. Overholt
“I do not believe that a total removal of restrictions to the movement of capital is good. The Asian crisis has further reinforced the belief that open capital flows create more problems and more vulnerabilities than they do benefits, at least as long as a country's market is small by global standards… I also do not believe that the best possible world for international finance is one in which governments stand idle. Everything must be set in a context: free trade and free flow of capital are only beneficial for those countries that have the necessary resources and skills to implement such measures.
Raymond Foo
“The Chinese and regional authorities are fully aware of the importance of adopting best practices and of fully interconnecting into global market infrastructures.”
David K.P. Li
