What will financial markets look like in 2015?: A perspective from Bearingpoint

June 20th, 2006

Bearingpoint has released a report titled “Shifting From Defense to Offense: A Model for the 21st Century Capital Markets Firm”.

This report provides additional information about the evolution of capital markets as already discussed in Financial markets are about to enter a transformational phase and Are offshore stock exchanges becoming more competitive in the internet era?. A number of paragraphs are extracted below. I recommend you download the 15 page document directly from Bearingpont here or here.

“The capital markets are in the midst of unprecedented transition. Companies in virtually every industry are dealing with the effects of globalization, demographic trends, regulatory shifts and new technologies. In addition, capital markets firms are confronting diminished returns from mature products, waves of disintermediation throughout the value chain and an overhang of underinvestment in their technology platforms.”

“These major shifts are only the beginning, however. Client-specific or “designer” investment vehicles are on the horizon. These new products will be created to match the specific requirements—the “investment DNA”—of clients.”

“Another dramatic change ahead is an expanding role for the exchanges. From their traditional function as a price discovery venue, the exchanges will begin to permeate other portions of the capital markets value chain, from facilitating investment banking services to creating enhanced clearing and settlement utilities. Exchange consolidation, an initial step in this direction, is already under way.”

“By 2015, advisory services will emerge as the most effective channel for serving individual and institutional clients. With demand for more complex products on the rise, clients will be more willing to seek industry-leading management services that can leverage technology to aggregate industry-leading products from a host of innovative product developers.”

“What will the list of top investment banks look like in 2015? During the next 10 years, we will see the exchanges added to the list of investment banking and brokerage players. Exchanges are just beginning to consolidate and make public offerings, but this trend will disintermediate the exchanges’ member firms in two ways.”

“Google is an excellent example of direct access for issuers because the company went straight to the public via the Internet to raise capital. Clearly, Google’s brand name facilitated such an initiative. However, much smaller firms will be able to avoid the high cost of investment banking advice and transactions by offering their securities in the same way. These transactions will be registered with and facilitated by the exchanges.”

These forecasts have been made before. The changes are likely to occur during the next ten years for the following reasons:

• Financial services fees are likely to represent an unacceptable amount of future investment returns. Above-average investment returns, driven by declining inflation, are likely to have ended.
• the maturation of key technologies which allow every individual to capture, store, process and transmit information like a multi-national corporation
• the penetration of broadband internet to the home and business. In some countries, this is approaching 90% of the population.
• the increasing proportion of economic activity and everyday life that is information based
• the comfort with which the vast majority of consumers use computers and the internet
• the stronger desire by many to work from home.  The ability to reduce business costs through teleworking and using freelancers.
• the emergence of many small company stock exchanges, usually the second board of a major exchange. Small and medium sized enterprises may be able to access capital markets as a result.

Entry Filed under: Online networks vs. industries, Economic development, Stock exchanges, online social networks