IN PRINT ARCHIVE CIR Summer 2000
|Are You Ready?|
|by Barb Clapham|
When it comes to stock exchanges, mergers and acquisitions seem to be at an all time high. The busiest participant has been Nasdaq.
On April 26 of this year, Nasdaq announced an agreement with the Quebec government to create Nasdaq Canada, a branch of Nasdaq's electronic exchange to be based in Montreal. Exactly one week later, Nasdaq Europe declared it had struck a deal to form a joint venture with the newly merged London Stock Exchange and the Deutsche Börse, an entity known as iX.
Referring to the alliance, Nasdaq Chairman Frank Zarb said, "Today's announcement represents one further step in realizing our global vision." Zarb has also been in talks with South Korea's second largest stock market, Kosdaq, as part of a larger plan to set up a worldwide 24-hour global trading system.
These changes and announcements seem to be happening at breakneck speed. Is Nasdaq moving too fast? Realistically, it has no choice. The exchange cannot afford to be complacent, with Internet-based trading systems nipping at its heels to get the business of consumers. The impetus for the alliances is the realization by the exchanges that trading is more and more a global business. Investors are demanding Internet accessible, cheaper trading and easier access to global trading. Nasdaq is responding to these demands.
Many of the challenges of global investing were discussed at the Canadian Investment Review's 5th annual Global Investment Conference. The findings of this conference begin on page 20. One presenter, David Dunlop, Vice-President of Global Securities Services at Royal Trust, notes how the growing trend for investors to see the world as a single global market rather than 90 individual markets is producing unprecedented change in the industry. With this change come great challenges.
One of the biggest challenges facing the industry is how to efficiently settle the rapidly growing number of trades which are made all over the world. According to Dunlop, the number of cross-border trades is expected to triple by 2002, a mere 18 months away. With further growth expected beyond that, a crisis looms on the horizon.
Fuelling the potential crisis is the increase in volatility the markets have experienced over the past few years. With trades taking up to three days to settle under the current system, Dunlop notes that there is significant risk that the settlement system could exacerbate a market correction and pose a threat to all players in the market. That is one reason why regulators are bringing in T+1, whereby trades will settle the business day after the trade is executed. The deadline for T+1 is June, 2002. Later this decade will come Global Straight Through Processing (GSTP), whereby trades will settle immediately, in real time.
Imagine. Worldwide, 24-hour a day trading with straight through settlement. Are you ready?