This morning’s WSJ (subscription required) carries an article, “Global Stock Exchanges Vie For a Slice of China's IPO Pie” outlining how free market forces are impacting an industry that practically stands for them.
“In the past month alone, the London Stock Exchange has opened an office in Hong Kong, while senior officials of stock exchanges in Toronto, New York and Singapore have visited China. The NYSE already has two offices in Asia and is planning to open a branch in Beijing. The Nasdaq is considering opening an office in Beijing or Shanghai… Meanwhile, smaller exchanges are setting their sights on particular niches. The Korea Stock Exchange, for instance, is focusing on attracting large-capitalization Chinese companies that aim to list in Hong Kong and may seek a dual listing in Seoul. The Toronto Stock Exchange is courting mining companies and small- and midcapitalization businesses… Several Chinese IPOs this year have avoided U.S. regulation by listing in Asia or Europe or selling stock on the private-placement market, which involves only qualified U.S institutional investors.”
Still, this is hardly a commodity business. Liquidity, investor access, regulation and brand cachet will always matter. But at the margin, other factors can make a difference when an IPO can go virtually anywhere and exchanges compete aggressively for new listings. And in today’s climate, regional resilience to terrorism is a very real consideration.
The widely acknowledged effect that the Madrid train bombing (aka, ‘3-11’) had on last Spring’s Spanish elections is a bitter example of how marginal effects can make all the difference. Industry veterans acknowledge that IRA bombings in central London in the early ‘90’s tipped some listings business towards New York. Similarly, the four-day shutdown of U.S. exchanges after 9-11 raised pointed questions for the industry in New York.
Thus, it’s not too much of a stretch to imagine Chinese companies looking quite differently at their choices if another 9-11-type terrorism incident were to befall New York or London. The potential for effecting longer-term sea-changes in the structure of the financial industry can’t have escaped the attention of Al Queda. (Though I doubt they'd use that kind of language to express their aims.) I know for a fact that this potential hasn’t escaped the notice of critical securities industry players in the US - though much work still remains to be done there.
In a fluid business like financial services, it wouldn’t take much to shift the balance of global competition. Hong Kong 2014 anyone?
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