The Changing Face of Competition and Regulation in International Capital Markets

1
The Changing Face of Competition and Regulation
in International Capital Markets

• Nigel Ray
• General Manager
• Financial Markets Division
• The Treasury

2
Key Developments

• Globalisation - Return of Integration
• Disintermediation
• Technology Advances
• Regulatory Changes

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Globalisation

• Integration of world markets is not new
• While net flows similar, gross flows are far
  greater
• Today, issuers and investors are a key driving
  force behind globalisation

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Globalisation

• Integration of world markets is not new
• While net flows similar, gross flows are far
  greater
• Today, issuers and investors are a key driving
  force behind globalisation

6
Disintermediation

• Changing role of traditional financial
  intermediation providers
• Shift from intermediaries to funds managers and
  direct holdings
• Rapid growth in private pension funds and mutual
  funds
• Larger financial institutions shifting into other
  lines of business
• More stable capital flows

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Disintermediation
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Disintermediation

• Changing role of traditional financial
  intermediation providers
• Shift from intermediaries to funds managers and
  direct holdings
• Rapid growth in private pension funds and mutual
  funds
• Larger financial institutions shifting into other
  lines of business
• More stable capital flows

9
Technology

• Altered the role of financial intermediaries
• Lowered information handling and other
  transaction costs
• New opportunities and greater exploitation of
  existing markets
• Reinforce or fragment markets and participants

10
Regulatory Changes

• Breakdown of Bretton-Woods par values was a major
  catalyst
• Regulatory change significant for markets
  globally - for example
• US Commodities Futures Modernization Act 2000,
  Gramm-Leach-Bliley, ECN regulations
• Europe Euro Wise Men Report
• Aust 1980s changes

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The Markets Response

• Demutualisation of traditional exchanges
• Linking pools of liquidity
• Vertical and horizontal integration, but also
  many new players
• Forces of consolidation and fragmentation
• Responses to demands for netting ability across
  different instruments, markets and borders

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Global Linkages
GEM ASX, Euronext, Hong Kong Exchanges and
Clearing, Bolsa Mexicana de Valores, Bolsa De
Valores de Sao Paulo, New York Stock Exchange
(NYSE), Tokyo Stock Exchange, Toronto Stock
Exchange
EURONEXT (Paris, Amsterdam, Brussels)
NYSE
TSE
Tokyo
Nasdaq/Amex
HKSE
Mexico
Brazil
SGX
ASX
MOUs Hong Kong, Indonesia, Korea, Malaysia,
Philippines, Singapore, Taiwan, Thailand, Tokyo
Source ASX
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Looking Forward

• Market structures are and will remain fluid
• Traditional exchanges are probably in a
  transitional phase - experimenting with business
  plans
• All types of trading will continue to be
  increasingly contestable

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Looking Forward

• Further technological change is likely to
  continue to enhance the internet as the delivery
  mechanism, with wide reaching ramifications
• Participants will demand a responsive policy and
  regulatory environment

15
Looking Forward

• Policy responses must allow the market to
  determine the outcomes, subject to appropriate
  competition policy, market integrity and investor
  protection
• FSRB is designed to deliver this through a
  flexible framework that regulates by function not
  market
• Increased convergence of financial market and
  services regulation