Europe’s Collapsing Financial Borders
European financial markets seem to be getting flattened, in more ways than one. For a long time most people thought the whole world was flat. Then 2,500 years ago Pythagoras proved that the world is spherical. Rediscovering flatness of a kind, 44 years ago Marshall McLuhan introduced the term “global village”, recognising that technology was unlocking the doors between people and nations. More recently, Thomas Friedman declared 4 years ago that “The World is Flat” in his best-selling book of that name, quoting one of the drivers and benefactors of this new “flat” earth, Infosys CEO Nandan Nilekani.
In the financial world, the “flattening” has gathered pace and momentum over the last 15 years in Europe, in the sense that the barriers between market participants have been steadily removed. With UCITS funds, the Single Euro Payments Area (SEPA), the Markets in Financial Instruments Directive (MiFID) and other initiatives, financial borders have certainly been falling at pace in recent times. Competition has become intense among financial services companies, and early movers have redesigned themselves to take advantage of the new “frictionless” market that is emerging in Europe. Exploiting one of the innovations driven by MiFID, and accepting a new label that only a pan-governmental body could have invented, “systematic internalisers” hope to expand the market position of their firms. National stock markets are undergoing a global consolidation, in an attempt to stave off the competitive threat of new, non-national exchanges such as “Project Turquoise” or Equiduct. And the supporting infrastructure of the securities and investment industry is also moving toward a Europe-wide context with, for example, Euroclear’s coming introduction of a “Euroclear Single Platform” that replaces its separate UK, Belgian, French and Dutch services with a single platform usable across all.
So, is there a lesson for participants in the financial markets at this time?
While the sub-prime scandal that began in the US and the credit crunch that has followed in its wake continue to sweep the financial globe and grab the headlines, a slower yet equally forceful and inexorable tide of change is flowing across the European world. If anything has been reinforced in the midst of these changes, it is that the agile tend to prosper at the expense of the slow-moving. Inertial forces are great and they impact the pace of change considerably, but in the face of inevitable change the most nimble players in the financial world are poised to gain great advantage. The Greek philosopher Heraclitus may not have seen the current European changes coming from his vantage point in 500BC, but he did coin a still useful maxim - All is flux, nothing stays still (or “Change is the only constant” as the management consultants say). So the lesson, perhaps or do I mean inevitably, is that the agile will prevail.
About the Author: Dermot McCauley is the Director of Capital Markets at Singularity, a leading BPM vendor (www.singularity.co.uk)
