The Intricate Web of Financial Markets Evolution, Viewpoint by Herbie Skeete, Editor-in-Chief, Mondovisione
A lot has changed since the late 13th century, when commodity traders in Bruges would meet informally at the home of a Mr. Van der Beurse. When in 1309 this group became the Bruges Beures and institutionalised their trading, the idea took off. It wasn’t long before Ghent and Amsterdam, too, had their “Beurzen.”
The concept spread through Europe. Bankers throughout Italy began to trade in government securities. In Holland joint stock companies were founded, and shareholders could invest and receive a share of the profit of loss. In 1602, the first stocks and bonds were issued on the Amsterdam Stock Exchange by a company that played an important role around the globe and in the world of finance; the Dutch East India Company.
It was in Amsterdam, at the Beurs, that continuous trading began in the early 17th century. Innovative ways to trade were a hallmark of the period, and many of the speculative instruments still used today began on the Amsterdam Stock Exchange.
Today there are stock markets in nearly every developed country and in many developing countries. Furthermore, in all manner of other kinds of financial markets, other securities, derivatives, bonds and commodities can be traded. Who does this trading? Market participants run the gamut from gigantic aggregated groups to small individual investors.
Orders can be taken and executed on the floors of exchanges or electronically on markets that are “virtual”.
The roster of market participants today represents a far cry from the old days, when buyers and sellers were mostly wealthy businessmen.
The growing will to open markets to greater access across the board would go nowhere without the technological advances that are making it possible.
Trading has become faster, more efficient and is increasingly reliant on technology advances. The much-anticipated extension of automated trading into instruments beyond equities remains only partly realized, but is beginning to happen with the continued electronification of the fixed income market. As the rapid electronification of markets continues, is it all about ultralow latency and connectivity across asset classes? How do we build trust and safety in markets? Is trading technology becoming too complex with no one sure as to how it all works? Technology is changing how participants engage the market, and has helped ease entry to the market, although the capital investments needed to keep up has also increased. Time for new market models to rebuild trust in markets?
As the world of trading moves to faster and faster trading, so – at a slower pace, thus far – does the post-trade world. Regulation has become a major driver for change. Europe has moved to settle on a T+2 basis rather than T+3 with the U.S currently working towards a timetable to implement T+2. Linkages such as the Shanghai-Hong Kong Stock Connect are driving a call for a move to a T+0/T+1 settlement cycle. Through use of blockchain technology fundamental change in the infrastructure of the financial services industry can be effected. Blockchain with its immutable, distributed ledger system that records transfers between accounts provides a public ledger that is trusted. If blockchain technology were integrated into securities trading, what would be the impact? T+3, T+2, T+1, T+0? Why not settle in 5-10 minutes? Shortening settlement times for trading could reduce the risk that counterparties would not be paid, while also cutting the amount of collateral, or insurance, used to back trades.
There is a lot happening in the world of financial markets, and the Mondo Visione Exchange Forum is the place to be for those interested in having an overview of the latest technological, regulatory, and market developments in the world of financial markets and the common problems trading venues face, explore some of the ways these problems are being addressed; and present the consensus view – from leading market professionals on how to move forward.
In one action packed day the conference will cover topics such as block chain and financial markets, environmental markets, the opening up of Middle East markets to foreign investors, the electronification of markets, the business of indices, whither global exchange groups and how techniques previously found only in the shadowy world of intelligence can make financial markets cleaner and safer.
This year’s Exchange Forum takes place on 12 November in London.
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Formerly a senior Reuters executive, Skeete was a main board member of Multex pre and post IPO.
Skeete is an advisor to exchanges, trading venues, information vendors, regulators and companies operating in the financial information space.