The 10th Edge Debate: 22nd June 2000

E.Com and the design of the City - The impact on the City as a product and a place

Judith Mayhew, Chair Policy and Resources in the Corporation of London and a lawyer with Clifford Chance

• The City is responding to a need for governments and companies to raise capital; and a need to invest and make money and so improve people's lives. Not only in this country and Europe, but right across the world.
• This embraces the great commercial prime movers in the world: international trade; financial capital; labour forces; and technology.
  • World stock market capitalisation has increased from $13 Trillion in 1995 to $31 Trillion today.
  • Emerging markets now account for 50% of all cross border capital flows. In the 1980's they were just 12%. Forecast demand for capital from these markets is estimated to be $1 Trillion over the next decade – roughly equivalent to the GDP of this country.
• During this whole development the City became a substantial user of technology and this has stimulated the further development of powerful new information and communications systems – the electronic market of today.
• E-commerce and the Internet are bringing us one of the greatest revolutions in consumer purchasing patterns. Financial services are part of this. Development financial associated technology is now moving so fast that we cannot afford not to be part of it.
• Electronic information is so much better and faster than manually collected records and data.
• Initially people had believed that the advent of better communications and the Internet would lead to a break up of established financial centres - and London, Tokyo and New York would lose business to newly established niche centres and electronic exchanges.
  • Electronic Communications Networks - ECNs, are often quoted as the vehicle that would trigger these changes. But as you know, this has not occurred in the City of London, or indeed in Europe.
  • Impact in North America, and NASDAQ in particular. There their impact has been significant with one of them, Island growing some 625% in one year. This growth has been fuelled as much by anonymity, speed and extended hours as by NASDAQ's quote driven, higher cost system.
  • European markets with their matched electronic systems, such as SETS, are much less attractive to ECNs and so this particular electronic market has not led to any un-clustering of City facilities.
• Established centres allow the 'top people’ proximity to each other and to their professional advisers. They facilitate the better use of the high quality analysis now available, both from computers and by the analysts themselves.
  • Fund management now manages word-wide funds of some $50 thousand billion. The electronic market place gives that sector more information, more ability to buy, as well as better risk analysis using sophisticated computer technology.
  • More fund management taking place in London, Tokyo and in centres in the United States. And this is at the expense of the smaller centres.
• Another important driver of the centralisation of financial products is clearing and settlement. There is an overwhelming need for products to be properly delivered and properly titled at the best possible price.
  • Importance of the London Clearing House's and Clearnet plans to create a consolidated European clearing house to meet the requirements of global market participants.
  • London Stock Exchange, CRESTCo, and the London Clearing House's plans to introduce a central counterparty for the exchange's electronic order book also driven by the electronic market place.
  • Other important factors in the continuing clustering of the financial market place in the City are the residual critical mass of exchanges with their depth of liquidity, outstanding telecommunications, our people and the existing infrastructure.
• Today a firm bases itself in London to obtain both liquidity, volumes and high quality services. London is now the execution capital of the world. And increasingly all markets and centres want a screen in London in order to do their business here.
  • Easier for these people to trade from this one location, particularly as the electronic market place is allowing them such a global reach. Today there is a need for professional and well informed people to surround markets and provide the necessary skill for value to be added. And in the City of London there is that very asset.
• Today companies want to trade commoditised products from across the world and to hedge their positions, all from one place
  • LIFFE's recent announcement of its intention to exploit the leading edge technology of LIFFE CONNECT, its trading system, by building a partnership with Cap Gemini Ernst & Young and two venture capital firms aims to take advantage of this.
  • United States chemicals and plastics procurement is worth $300 billion, telecommunications bandwidth $500 million and electricity $250 billion - and only 6% of electricity is being traded electronically.
  • That is just the spot market. Futures capability could be worth ten times that. All this is again driven by the electronic market place. The future potential is vast.
• Wind of change is blowing through every centre. You have to move fast to keep your present position. You have to create new markets for yourself and for other people.