Can exchanges change the world and shape the future?
This goes well beyond the traditional mantras that derivatives markets help set prices and offset risk, or stock markets help raise capital for companies. Hats off to the World Federation of Exchanges’ General Assembly and Annual Meeting, being held this week in Athens to ask the questions such as: What is the exchange & CCP role in bringing economies back to life? How do they best enable sustainable development? How can they serve their stakeholders better?
Hosted by the Athens Stock Exchange, this year’s meeting venue is located just below the Acropolis, which seems an appropriate locale to ask exchange leaders the compelling question: just what can exchanges do for domestic and global economies, and better yet, what will their legacy be 10 years or 1000 years from now? Greece’s rich history may offer some clues on what will stand the test of time.
Three separate panels are devoted to the role of exchanges and CCPs, sustainability and the plan for the next decade. There may not be a more interesting topic than the session called “The Renewal, Rebuilding & Rebirth of Economies – The Role of Exchanges & CCPs,” which asks the questions mentioned above on exchanges, economies and sustainable development.
In today’s geopolitical backdrop, such questions are more relevant than ever. The rise of populism and nationalism in many countries leaves much to worry about. The concerns of some of the biggest names in markets about the overall health of the US and European economies in the coming years. The recent opinions of Ray Dalio of Bridgewater come to mind about the economy looking ominously like 1937, and the potential impact is forcing the industry to think about the next financial crisis, now 10 years on from the last one. The role that markets may play is worthy, if not essential.
It can be argued that exchanges do what they do – and do it very well. Exchanges and clearing houses showed incredible strength and unparalleled efficiency during the financial crisis. But the truth is, most citizens in most countries didn’t notice, nor did they particularly care. With jobs lost, home values plummeting and retirement investments decimated, no one was really in the mood to hear about how the CCP system worked as designed and exchanges remained open.
Now that those dark days are behind us, the question for the market is what it can do next. Can an exchange do more to help individuals who are really trying to make a difference with their companies in technology, health care, agriculture, energy, manufacturing and so forth?
Another panel is looking at the issue of sustainability, a huge buzzword in Europe and gaining ground in the US. The Roadmap for a Sustainable Financial System report from the World Bank last year called for more sustainable finance for economic growth. Yes, that includes addressing things like climate change, but it extends to social and governance as well, or ESG. The World Bank report states that the “financial system needs to be harnessed to serve as an engine in the global economy’s transition toward sustainable development.” The WFE has addressed this with papers and an annual sustainability survey with revised ESG guidelines for listed companies. Five sustainable principles will be published this week by WFE. If the organization can lead to way in terms of hiring practices, good governance standards and a push for greater environmental impact regardless of politics, it will indeed be extending the role of exchanges.
There is evidence that exchanges may be losing their edge. An Ernst & Young report last week showed that through September 2018, 1,000 IPOs were held globally, down 18 percent from a year ago. Meanwhile, there were 1,122 initial coin offerings through the first nine months of the year, raising $7.1 billion, according to ICOdata.com. IPOs are still dwarfing that amount, with the US alone raising $50 billion in IPOs over the first 9 months. Yet it shows in part that many small companies don’t believe an IPO is attainable or desirable. It also is easy to dismiss ICOs as a sort of Wild West con-game for suckers – and to some degree that label sticks. But there are serious companies with serious investors in the ICO space who believe that investment track is preferable to traditional IPOs. An emphasis on quality, transparency and good governance may be the guiding light for exchanges and investors in the years to come.
Will blockchain and cryptocurrencies be the legacy that endures? That is an interesting question. The WFE is composed of more than 200 market infrastructure providers, from exchanges to CCPs to technology infrastructure firms with a healthy balance of participants from Asia, EMEA and the Americas. Putting their collective heads together to tackle the question is not only a good idea but it may be an essential piece to extending the influence of exchanges.
Exchanges can do more for society. How they go about it is the key to leaving a legacy that stands as long as the Acropolis.
**Jim Kharouf will be providing more stories from the WFE conference this week.