One of the most interesting presentations of the two-day conference was given by Mr. Gerrit H. de Marez Oyens, Secretary General of the International Federation of Stock Exchanges (FIBV).
Central to Mr. de Marez Oyens' discussion was the idea that the traditional securities exchange is no longer the exclusive vehicle for trading securities. In the past decade, technological innovation has allowed securities transactions to be conducted outside the purview of the exchange. Individuals acting on their own or on behalf of others can engage in activities that were once the sole prerogative of an established exchange. More remarkable, according to Mr. de Marez Oyens, is the instantaneous nature of such "outside" activity. Communications technology, he indicated, allows trades to be made virtually without delay with the touch of a computer keyboard or click of a mouse. Such technology has also allowed actors outside the realm of traditional exchanges to have access to information about publicly traded companies that was difficult to obtain from outside the exchange in the past.
Regulating
One of the primary areas of thought for analysts of the new global securities environment is the manner in which such activities are to be regulated. While some, according to Mr. de Marez Oyens, have suggested that no regulatory activity is required and that securities markets function at their most efficient in the absence of any regulation, his view is that at least some degree of regulatory activity is essential for establishing a level playing field on which no parties can claim an advantage. He stressed the point that while competition may be an excellent regulator, its success requires that all parties have equal access to the knowledge and information which provide the opportunities for benefits and which also permit all parties to share equally the risks resulting from their decisions.
One of the key elements in creating a level playing field is to ensure that all parties are subject to the same rules. Accordingly, de Marez Oyens stressed the importance of harmonizing the rules governing the exchanges that are now enjoying an increasingly active role globally (for example, Hong Kong, Manila, Taipei, Bangkok) as well as those whose role may develop in the next decade (Moscow, Prague, Bratislava and Budapest, among others). The most efficient avenue for effective regulation, he concluded, is mutual cooperation.
Individual exchange
Mr. de Marez Oyens underlined the challenge faced by individual exchanges in the brave new world of global, speed-of-light securities transactions. He suggested that each exchange faces difficult decisions about how to remain relevant and competitive. To this end, several proposals were discussed. Mr. de Marez Oyens described several exchanges which have considered privatization as a means of meeting this challenge. Under privatization, the exchange would issue its own shares which would then be listed and traded.
Another proposal, somewhat more realistic, would be for exchanges to offer a greater range of services to investors. An individual exchange, for example, could offer services related to shares, futures, options, currencies and other commodities for which a market exists. In attempting such activity, however, exchanges must ensure the availability of adequate information to all investors, something that is far from guaranteed, even with the advances in communication technology.
Mr. de Marez Oyens outlined several steps which he believes are essential for individual exchanges to adapt and survive in the new global environment. The first requirement is a plan or strategy in which the objectives of the exchange are established. The strategy must be realistic and must reflect the resources available to meet the objectives. Those resources must then be used efficiently to generate activity specifically aimed at attaining the objectives. The exchange must be customer-oriented, ensuring that the services it offers are relevant to customer needs. Lastly, the decision-makers of the exchange must establish performance objectives so that progress can be measured over time and weaknesses pinpointed and subsequently alleviated.
New forms of risk
Mr. de Marez Oyens pointed out the risks inherent in an environment where securities are traded in many locations, by and among an increasing number of actors. The most obvious risk was described as the risk of technology failure or "systemic risk". This means simply that as exchanges grow more and more dependent on technology in conducting their daily activities, as the volume of those activities grows in a seemingly exponential manner, and as the activities themselves become more widely dispersed across the globe, the impact of technological failure becomes greater.
A second important risk described by Mr. Marez Oyens relates to the security of transactions in a technology-driven, fragmented, global environment. Until sophisticated, comprehensive regulation is in place, with effective enforcement mechanisms, exchanges are vulnerable fraud and other forms of illegal activity. One simple example would be trades made via the Internet. In such a situation, the seller of securities may have no indication at all that the buyer will honor the contract, as the buyer may be completely anonymous. Clearly, effective regulation will not eliminate such activity but it is still essential to reduce any negative impact.
A third risk suggested by Mr. Marez Oyens is the potential in the new environment for piracy of private or confidential information. Communications technology has created an environment where information is easily - and often - transmitted in an unprotected manner. In such an environment, there are no guarantees that information will be received only by the intended recipient.
Mr. de Marez Oyens concluded his presentation by suggesting that the Internet and other communications technology have only begun to revolutionize the securities industry and that lawyers and other professionals, when taking advantage of the benefits wrought by such developments, will also have to understand the risks of these technologies in order to serve their clientele efficiently.
