Global Conference 2008

Global Conference 2008

The Globalization of Capital Markets: The Rise of New Financial Centers

Monday, April 28, 2008 / 11:00 am - 12:15 pm

Moderator John Gapper of the Financial Times began the discussion by pointing to Michael Milken as a prime example of the globalization of capital markets. He noted that Milken was one of the first major financial figures to operate on the West Coast, realizing early on that you don't have to be in New York to plug into global markets.

Gapper asked the panelists what has been the catalyst for the rapid rise in of capital and influence in the Middle East and Asia. David Knott of the Dubai Financial Services Authority replied that Dubai has created a financial market that has become a stabilizing force in the emerging world. "Dubai is the [financial] gateway to the Middle East," he stated, noting that it is a safe haven for investment and its economy has shifted away from oil dependency. Knott felt that Dubai's success stems from the fact that it is the most liberal, tolerant and hospitable location in the Middle East for Westerners.

Magnus Böcker of NASDAQ OMX Group looked to another part of the world, noting that Scandinavia has developed financial markets that create stable investing options. He felt that a key to this stability is the standardization of all financial markets within those countries.

Guy Saxton of First London Securities PLC rejected the notion of comparing different markets at all. "I don't buy into the notion of separate markets. They are quite simply the same participants, just different locations."

That observation begged the question: What makes a financial center? Craig Donohue of CME Group said that it's important to consider how the financial service sector has changed. The number of employees in the sector has doubled in the last 10 years, and this growth is a phenomena because the sector is regularly taxed twice as much as other sectors for its employees. Donohue felt that what defines a financial center is its "intellectual capital, financial capital and infrastructure."

Can emerging markets handle these needs to develop and sustain a truly global system? Knott said that in most cases these issues mark the next stage of development for emerging markets.

Using the Middle East as an example, Knott stated that that there is "only room for one financial center in most geographic segments." He felt that success depends on who creates the best and builds the most global links. Donohue responded, "People don't literally care about where the contracts are traded. It's about technology and infrastructure. We live in a global world."

The strategy at CME, for instance, is to partner and establish joint ventures, so the exchange can figure out global markets and find the most profitable growth opportunities. Yet Donohue acknowledged that there is still concern about the globalization of capital exchanges.

Böcker said that for NASDAQ's most recent merger, the two exchanges "dated for 10 months before successfully marrying. We tested the marriage before actually getting married, which actually help build a relationship." He believes that mergers are more successful when relationships are nurtured and developed, and he predicted that NASDAQ will see the benefit of going global, rather than being U.S.-centric.

Gapper continued the discussion by asking the panel of their thoughts on regulation. Knott said that because Dubai is a newer market, it could observe different regulation policies and choose to develop the best options; Dubai "doesn't have a legacy problem." Many countries, he says, have an over-inflated bureaucracy, creating regulation that is not needed. Donohue said that too much as been made of U.S. regulations, yet the most important concern is security and the SEC's inflexibility.

Gapper asked the panel if they believed U.S. Treasury Secretary Paulson's initiative to create streamlined regulation would work. Donohue said the U.S. system is too complex, and he would like to see a move toward principles-based regulation. Saxton noted that the United Kingdom is flourishing because it uses such a system. He pointed out that going rules-based is very expensive; principles-based regulation codifies everything into a manageable set of guidelines. He used the U.K. firm Evolution as an example, noting that when Evolution conducted illegal business, the market — rather than regulators — responded, and the company lost 83% of its business. "How much can the government actually control participants?"

Saxton noted that he would like to see a global regulator streamline global markets, allowing exchanges to enter many countries without the burden of navigating differing regulatory policies.

"The greatest message of hope of global markets is happening in the Middle East," Knott concluded. Gapper concurred, pointing that this phenomenon is a great realization of the global world.


John Gapper

Associate Editor and Chief Business Commentator, Financial Times


Magnus Böcker

President, NASDAQ OMX Group Inc.

Craig Donohue

CEO, CME Group

David Knott

Chief Executive, Dubai Financial Services Authority

Guy Saxton

CEO, First London Securities PLC

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