London's `City' looks to brisk new breezes on financial horizon
I had expected to talk about the economy. Instead, I felt I was getting a look into the future. I'd stopped in to talk with an old friend, Brian Reading, a British economist associated with International Advisory Associates in New York. The glimpse into the future is the 24-hour trading day that many investment people see coming.
Japan is beginning to free up access to its markets, although Hong Kong is already an active international marketplace. As investment information and transactions become ever more automated, the main markets in Asia, London, and the United States will be open almost around the clock.
Britain is about to undergo some big changes in the regulation of its financial intermediaries. Mr. Reading says, ``Inefficient regulation by segregation is to be scrapped. Efficient supervision by information will take its place.''
The changes coming in Britain are many. One of the biggest of them will occur late in October with the ``big bang.'' That is when the London stock market will go off fixed commissions and ``single capacity'' functions.
Without going into all the fine print, Reading says that basically the British are taking a leap into the 21st century.
In doing so, the British will be depending on the availability of instant computerized information to help regulate a system that, until now, had been tied up by tradition even more than the tightly regulated financial intermediaries in the United States.
As a result of this leap into the future, which Reading thinks is more significant than anything similar in the US or Japan, London should be able to gain a larger share of the world's financial business than it has at present.
One can find those over here who think some of the corporate buyouts (in anticipation of these relaxed rules) have been at too high prices. Reading thinks that such views look on the market here as static instead of dynamic.
``The world becomes wealthier with every passing peaceful year,'' Reading observes. ``The annual accretion to that wealth is the excess of production over consumption. . . . The financial system functions by managing that wealth and transferring its annual increment from saver to investor in the form of financial claims.
``Not only are there extant vast quantities of such claims,'' he continues, ``but the growth of such claims far exceeds that of the income and investment from which they are generated and to which they are devoted. . . . This alone ensures continued rapid expansion of the financial services industry worldwide.''
There is another factor at work besides the expansion of financial assets themselves. That is, as markets become more computerized and trading goes on virtually uninterrupted somewhere in the world, many markets can function better than even large institutions that were historically tied to a physical location.
How far can this new system take the City (London's financial district)? Reading does not foresee London taking a full third of the world's trading business, for at least two reasons.
When London is first at work, Tokyo has not yet stopped for the day. And before the day is over in London, New York has begun its day. On the other hand, both Tokyo and New York will continue to enjoy parts of the day when one or the other is the only market fully awake.
The second difference is that Japan and the US have major domestic markets to serve, both much larger than the domestic market here in Britain.
But neither of these factors dims Reading's basic bullishness about the future of the City. In fact, he sees a major building boom coming on around the outskirts of the City as the financial markets here become even more active.
``The `big bang' is superbly timed to leave London superbly placed to obtain an increasing share of an increasing market,'' Reading says.
The timing is right, he asserts, ``just as the world returns to the price stability which produced the rapid growth of the postwar great prosperity, and as 21st-century technology eliminates barriers of distance and time.''