The Changing Face of Competition and Regulation in International Capital Markets

1. The Changing Face of Competition and Regulation in International Capital Markets Nigel Ray General Manager Financial Markets Division The Treasury

2. Key Developments • Globalisation - Return of Integration • Disintermediation • Technology Advances • Regulatory Changes

3. Globalisation • Integration of world markets is not new • While net flows similar, gross flows are far greater • Today, issuers and investors are a key driving force behind globalisation

5. Globalisation • Integration of world markets is not new • While net flows similar, gross flows are far greater • Today, issuers and investors are a key driving force behind globalisation

6. Disintermediation • Changing role of traditional financial intermediation providers • Shift from intermediaries to funds managers and direct holdings • Rapid growth in private pension funds and mutual funds • Larger financial institutions shifting into other lines of business • More stable capital flows

7. Disintermediation

8. Disintermediation • Changing role of traditional financial intermediation providers • Shift from intermediaries to funds managers and direct holdings • Rapid growth in private pension funds and mutual funds • Larger financial institutions shifting into other lines of business • More stable capital flows

9. Technology • Altered the role of financial intermediaries • Lowered information handling and other transaction costs • New opportunities and greater exploitation of existing markets • Reinforce or fragment markets and participants

10. Regulatory Changes • Breakdown of Bretton-Woods par values was a major catalyst • Regulatory change significant for markets globally - for example • US: Commodities Futures Modernization Act 2000, Gramm-Leach-Bliley, ECN regulations • Europe: Euro; Wise Men Report • Aust: 1980s changes

11. The Markets’ Response • Demutualisation of traditional exchanges • Linking pools of liquidity • Vertical and horizontal integration, but also many new players • Forces of consolidation and fragmentation • Responses to demands for netting ability across different instruments, markets and borders

12. Global Linkages GEM ASX, Euronext, Hong Kong Exchanges and Clearing, Bolsa Mexicana de Valores, Bolsa De Valores de Sao Paulo, New York Stock Exchange (NYSE), Tokyo Stock Exchange, Toronto Stock Exchange EURONEXT (Paris, Amsterdam, Brussels) NYSE TSE Tokyo Nasdaq/Amex HKSE Mexico Brazil SGX ASX MOUs Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Tokyo Source: ASX

13. Looking Forward • Market structures are and will remain fluid • Traditional exchanges are probably in a transitional phase - experimenting with business plans • All types of trading will continue to be increasingly contestable

14. Looking Forward • Further technological change is likely to continue to enhance the internet as the delivery mechanism, with wide reaching ramifications • Participants will demand a responsive policy and regulatory environment

15. Looking Forward • Policy responses must allow the market to determine the outcomes, subject to appropriate competition policy, market integrity and investor protection • FSRB is designed to deliver this through a flexible framework that regulates by function not market • Increased convergence of financial market and services regulation