The Changing Securities Game
I am unaware of an industry where the rules of the game are changing faster than in the securities business. The combination of deregulation and globalization have made the successful management of change a necessity.
Deregulation has become reregulation. As quickly as the economic aspects of regulation - such as fixed commission rates and the barriers to integration of different sectors of the financial business - were removed, new questions of capital adequacy and conflicts of interest in integrated firms have developed. With the national and international barriers to competition removed, the competition between financial institutions intensified.
Change, of course, means risk as well as opportunity. Unlike the United States - but perhaps a precursor of its future - the barriers to competition between the sectors of the Canadian financial industry are a thing of the past. Banks, insurance companies, trust companies or foreign entities that meet regulatory standards can participate in the Canadian securities market and belong to the Toronto Stock Exchange. Announcements appear regularly about mergers and acquisitions within the industry. The major securities firms have nearly all been acquired by banks or other large financial institutions both Canadian and foreign. While traumatic for those affected, these changes were not unanticipated by those who decided on Canadian deregulation. Their view was that the survivors of deregulation would be battle-hardened to compete internationally.
On top of deregulation, the securities industry has moved rapidly toward globalization. As communication has become less costly and computers have made possible the assessment of masses of information, the flow of portfolio capital across national borders has increased at an exponential rate. In the second quarter of 1989, U.S. investors bought U.S. $4.3 billion worth of foreign equities, more than three times the $1.67 billion total credited in the first quarter. According to Intersec Research, there is a reasonable expectation that investment abroad of U.S. tax-exempt funds will reach $150 billion over the next five years. Investors everywhere have recognized that international diversification can increase returns and reduce risk.
As president of the exchange at the heart of the fifth largest securities market in the world, I am very conscious of the speed with which the world is changing. We have had to ask ourselves what the new global environment will be like and where we will fit. The world we foresee is one where orders will be able to move in milliseconds, from pools of capital wherever they may be, to the best market wherever it may be. Clearing and settlement problems, which seem so intractable today, will be resolved. The only question will be, where is the best market? …