Outlines

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2. 2 Outlines I Globalization of the financial sector II Review of the development of Taiwan�s capital market and the financial industry III Challenges IV Responses

3. 3 Globalization of the financial sector A. �Get global, get specialized, or get out� B. The �Big Bang� C. Financial centers are booming. D. Global investment banks are ever more aggressive. E. US capital market is losing its competitiveness.

4. 4 In collaboration with the Economist Intelligence unit, this IBM report develops and uses a model and have used it to trace the effect of globalization across 35 of the world�s largest economies. The report also surveyed 848 financial markets executives from around the globe and 107 of their corporate clients.

5. 5 Summary of Findings Financial markets firms have historically avoided the commoditization trap by innovating to create new products and services; the bulk of their impressive growth has typically come from mature markets. Yet today, growth opportunities in those geographies are evaporating, and meaningful future expansion will come from new markets. Indeed, the worldwide industry opportunity is expected to double by 2015. But which firms will seize these emerging profit pools? The report believes it will be those that specialize in the areas their clients value while optimizing their global reach, and do both in ways that aren�t expected.

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8. 8 Key Element to Success or Failure 1: Talents

9. 9 Key Element 2: IT infrastructure For a robust financial market, economies must also have the vital information and communications technology infrastructure. According to annual e-readiness rankings of the world�s 35 largest economies, global e-readiness grew at a 7-percent CAGR from 2001 to 2006, which is faster that worldwide GDP. On a scale of one to five, worldwide e-readiness was judged to be 3.27, largely led by developed markets. At the top of the scale were Switzerland (4.9), the United Kingdom (4.8) and the United States (4.6). India fell in the middle of the pack at 3.1. And China (2.6), Ukraine (2.6), Russia (2.4) and Iran (1.7) ranked lowest.

10. 10 Key Element 3: Trading Volume Economies must also have a sizable liquidity pool to support continued future growth of the capital markets. Based on our analysis of velocity, the ratio of trading volume to market capitalization over the past ten years, it is clear that liquidity is increasing globally. In 1995, the ratio for Europe, the Middle East and Africa was under 70 percent; but by 2005, it had more than doubled to 145 percent. Asia�s ratio grew from 41 percent in 1995 to 75 percent in 2005. And even with a much higher overall volume of trading, the Americas� ratio increased from 75 percent in 1995 to nearly 130 percent as of 2005. This level of growth presents an opportunity for broker dealers in particular, as they realize higher revenues based on velocity increases across the geographies.

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12. 12 B. The �Big Bang� UK 1986 (London Stock Exchange): abolishing the fixed commission charges system, more open to the international players and a change from open-outcry to electronic, screen-based trading (Stock Exchange Automated Quotation system or SEAQ). UK 1997: passage of the Financial Service and Market Act, which combines jurisdiction of agencies for banks, securities, insurance, futures,� into a single Financial Services Authority.

13. 13 Background of the London�s Big Bang The relative decline of the status of the British securities market In 1985, before the implementation of the "Big Bang," the London stock exchange's turnover was only 1/13 of the then world's No. 1 New York, and it was only 1/5 of the No. 2 Tokyo.

14. 14 Reforms in October 1986 (1) Firms were permitted to act as both jobbers and brokers�two categories that had previously been strictly segregated (2) The opening up of membership of the stock exchange (3) The lowering of the 1% tax on share transactions�the equivalent of Japan�s securities transaction tax�to 0.5%.

15. 15 Achievement after Reforms (1) Industrial Effects While the ratio the financial sector occupies in UK's GDP was 13.6% in 1985 before the "Big Bang", it had risen to 17.2% in 1990, after the "Big Bang. (2) Competitiveness of Commissions Commission ratios on the whole achieved a standard that was relatively low by the international standard. (3) International Position Capital of securities firms was strengthened in general. London became the center of European investment banking.

16. 16 Japan 1996: The Financial Services Agency Created Japan 1998-2001: The Big Bang package is a complex series of measures (contained in a 2,132-page volume), staggered from April 1, 1998 to March 2001. The first liberalization removes barriers to companies buying and selling, and offering investments, in foreign currencies. By 2001 it will be theoretically possible for Japanese and overseas-owned institutions alike to perform banking, insurance, stock brokering and investment services in yen or any other currency, with minimal government regulation. "Japan is not doing enough," stated Frank Hesske, minister-counselor and deputy head of deregulation for the European Commission in Japan. US Trade Representative Charlene Barshefsky had an even more negative view. "The new deregulation program is too vague on key issues and often delays implementation of important regulatory changes for several years," she said. (Source: Mike Head, the 4th International)

17. 17 C. Financial Centers are Booming London, New York and Hong Kong are the world's top three financial centers according to Economist. Key factors: 1. Plenty of skilled people 2. Ready access to capital 3. Good infrastructure 4. Attractive regulatory and tax environments and low levels of corruption 5. Location and the use of English

18. 18 Although New York and London are pre- eminent, other big cities play important international roles of their own. Tokyo, Sydney - financial capitals of big national markets Hong Kong, Singapore and Dubai - the gateways to emerging regions Geneva - private banking Zurich and Bermuda - insurance and reinsurance Chicago - futures and options Qatar - infrastructure finance Bahrain - Islamic finance

19. 19 There are two big changes that have encouraged the proliferation of financial centers around the globe. 1. The shift of economic activity and jobs towards China, India and other developing countries. 2. Growing demand for natural resources from the Middle East, Russia and parts of Latin America. Technology is predicted would end clustering in city centers. Armed with broadband, mobile phones and BlackBerries, financial services could work from almost anywhere.

20. 20 D. Global investment banks are becoming ever more aggressive Commercial banks such as Citigroup and JPMorgan Chase have muscled back into investment banking. And European warhorses such as Deutsche Bank, UBS and Credit Suisse have joined the race for global supremacy.

21. 21 E. US� capital market is losing its competitiveness The industry has been important to the US economy: The US financial services industry contains 5 percent of private sector jobs but produces 8.1 percent of GDP. The securities industry contains only 0.65 percent of private-sector employment, but is responsible for 1.4 percent of GDP. In New York City, the securities industry accounts for 4.7 percent of the jobs but 20.7 percent of total wages and 15.8 percent of non-property taxes. In New York State overall, this industry is responsible for 2.2 percent of the jobs, 12.5 percent of total wages, and 18.7 percent of total tax receipts.

22. 22 But there are signs that the U.S. public equity capital market is losing competitiveness. 1. Increasing use of foreign markets. 2. Rising importance of private markets. 3. Cost of capital: an indicator of problems?

23. 23 II Review of the development of Taiwan�s capital market and the financial industry This industry contributes 10.3 percent to Taiwan�s overall GDP in 2006 It accounts for 4 percent of the employment in the same year During the 1990s, it played a pivotal role in the rise of the IT industry which had access to vast amounts of low-cost capital for its expansion

24. 24 III. Challenges Shrinking employment in the financial sector IPO growth stagnated Massive outflow of capital Competition with global players of investment banks in Asia (Merrill Lynch, Goldman Sachs, Morgan Stanley, HSBC, Citigroup, UBS,�etc)

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32. 32 IV. Responses (recommended) Laws and regulations be aligned with the needs for international competitiveness Deregulating and strengthening risk governance in securities industries Taiwan Stock Exchange becomes a publicly-traded corporation subject to global competition

33. 33 THE END