money markets and telecoms
Morris Kaplan
Morris Kaplan, one-time stockbroker and venture capitalist, brings his finance skills and recent experience as a business journalist and writer to IT, with a special interest in telecoms and how communications is being transformed by technology.
One industry that exemplifies the hunger for faster and deeper broadband connectivity is the stock exchange industry.
The National Broadband Network (NBN) may be the subject of many telecoms engineers and marketers but it is the traders, the brokers and the vast pools of institutional money managers that are watching with interest developments in the telecoms space — not that they are waiting around for the NBN rollout.
We are witnessing telecoms advancement at work in the proposed merger (or, is that takeover?) between the Singapore Exchange and the ASX. While politicians argue the case for and against (much like the NBN debate), the muscle men behind the exchanges are gaining high level political support. Why? Because finance needs top-of-class technology to keep doing what it does best: Attract institutional and private equity funding into the stock exchanges and to ensure traders have the best, most powerful tools at their fingertips.
The ASX will formally apply this month to the government for approval of its $8.4 billion takeover by Singapore Exchange and dismissed the concern of lawmakers who argue the buyout isn't in the country's national interest. The argument being put by the ASX is that combined exchange “will be both more regionally relevant and globally relevant than the sum of is parts."
The deal would see the combined Singapore-controlled company become Asia's fifth-largest stock market operator challenging bourses in Tokyo and Hong Kong for international capital inflows. In Asia the tie-up could trigger wider consolidation as exchange operators scramble for economies of scale, access to foreign capital inflows and new listings. Both companies say the merger will break down national boundaries and create an Asian-Pacific powerhouse with more than 2,700 listed companies from about 20 countries.
The internet and high-speed platforms have enabled stock exchanges to prosper since the doldrums of the Asian crisis of the late 1990s. Cost synergies are a potential upside of the merger but it is the economies gained that will drive more powerful communications outcomes with both exchanges in recent time following similar medium-term technology strategies, focusing on rolling out new, faster-execution platforms and new market data facilities.
A big driver for the need for speed by traders has been the rapid rise of algorithmic, or black-box, trading machines that chop large transactions into millions of smaller deals and splay them out to avoid positions being identified by rivals. This technique needs increasingly powerful computer processing capabilities and data transmission speeds that attract premium pricing from suppliers.
Speed can be a competitive advantage and when you consider that on any given day (in Australia alone) transactional value can amount to hundreds of millions of dollars, you can understand why the tech heads and financial analysts want bigger, faster, smarter computers and communications gear and software. If you want to guess an outcome here think of the term ‘follow the money’.