Tech Transformation Ahead
The next five years will see a revolution in market technology and the largest beneficiaries will be developing markets according to Sandy Frucher, vice chairman at Nasdaq.
Frucher spoke at a reception in London yesterday hosted by the World Federation of Exchanges, an association for exchanges and clearing houses.
“The technology of today is not the technology of tomorrow,” said Frucher. “The cloud will allow emerging markets to connect to sources of investment and liquidity and give them the ability to aggregate products.”
He continued that blockchain technology will change clearing and allow emerging markets to jump over existing infrastructures.
“They can focus on converting family-owned firms into listed companies,” Frucher added. “We are in an exciting transformation and the largest beneficiary will be developing markets.”
An example of exchanges dealing with this transformation is LSEG Technology, London Stock Exchange Group’s technology provider, being selected by Atom Group for its new digital asset exchange. The fintech company based in Hong Kong is expected to launch AAX in the first half of this year. AAX will be the first digital asset exchange venue to use the Millennium Exchange matching engine.
Peter Lin, chief executive of Atom Group said in a statement: “AAX will leverage LSEG’s Technology to deliver a world-class exchange that ensures safe, trusted and secure digital asset trading for all.”
David Schwimmer, the new chief executive of London Stock Exchange Group, also gave a speech at the WFE reception. He began by remembering that twenty years ago, when he was an investment banker, he gave a presentation to WFE on exchanges demutualising.
He highlighted the importance of emerging markets by noting that HSBC research has predicted that emerging markets will be 50% of global GDP and 70% of global growth by 2030. China will then be the largest global economy and India will be the third largest.
“Last year FTSE Russell decided to include China A Shares FTSE Emerging Index and this will drive about $10bn inflows once fully implemented in the first phase,” Schwimmer added. “Better connectivity is also important and we continue to work on Shanghai-London Stock Connect.”
Schwimmer also highlighted LSEG’s efforts in Africa, which will have more working age people than China by 2030.
Last week LSEG launched the second edition of its ‘Companies to Inspire Africa’ report, identifying the fastest growing small enterprises on the continent.
Schwimmer said: “The ‘Companies to Inspire Africa’ report showcases inspirational and entrepreneurial businesses from across the African continent, representing a wide variety of industries and countries. It is particularly encouraging to see the increasing influence of women in leadership roles in these fast-growing companies, playing a pivotal role in shaping the future of African business.”
.@LSEGplc is delighted to welcome @PennyMordaunt, @DFID_UK along with African government representatives & business leaders to open trading in London this morning, celebrating the launch of Companies to #InspireAfrica https://t.co/H4xdU5yX8L pic.twitter.com/fZ3PHQMmbW
— London Stock Exchange Group (@LSEGplc) January 16, 2019
Nearly one quarter, 23%, of the companies are led by women – almost double the proportion in the previous report two years ago.
The report was produced in partnership with African Development Bank Group, CDC Group, PwC and Asoko Insight and is sponsored by Instinctif Partners and Stephenson Harwood.
Nick O’Donohoe, chief executive of CDC Group, said at the launch: “CDC Group has more than 70 years’ experience investing for growth in Africa so it’s a privilege to champion more than 360 high performing businesses recognised in the publication. We were proud to invest $180m in the continent’s largest independent fibre and cloud provider, Liquid Telecom, who will deliver broadband connectivity to support SMEs from Cairo to Cape Town.”
CDC Group intends to invest a further £3.5bn to invest across Africa over the next three years.
WFE has published a report, with the support of the European Bank for Reconstruction and Development, to understand why international investors participate in emerging markets.
Key finding #1 from our #emergingmarkets investor report: Financial returns are important for investors; however, their broader investment strategy will also guide how they evaluate returns & how they decide where to invest https://t.co/YqChoDqoPU pic.twitter.com/wJ2KJcGGQ8
— WFE (@TheWFE) January 21, 2019
The study found that the importance of market infrastructure features (including the presence of an electronic trading platform, ability to short-sell, presence of market makers, and the ability to engage in securities lending and borrowing) varied across respondents. Notable exceptions were the existence of a delivery versus payment (DvP) settlement system, and the presence of global custodians.
Siobhan Cleary, head of research & public policy at WFE, said in a statement: “Our paper highlights several common themes that present opportunities for emerging market exchange operators and stakeholders. We would urge markets wishing to attract international investors to focus on our recommendations, and incorporate them where possible into their market development initiatives.”
The not-for-profit initiative will make it easier to ensure funds are comparable and clear about costs.
The new venue hopes to attract 15 to 20 listings over the next year.
An increasing number of firms are using distributed ledger technology.
Societe Generale paid for covered bonds in digital euros issued by Banque de France via blockchain.
The equity derivatives clearing organization has selected Axoni to develop and implement DLT.