By Jim Middlemiss
http://www.wallstreetandtech.com/showArticle.jhtml;jsessionid=MMCMY42Y0Q0QCQSNDLPSKH0CJUNN2JVN?articleID=59301331
In this article, the author explores the growth opportunities and challenges faced by China’s stock market. China as with many rapidly developing economies, is experiencing growth in its stock market, yet it needs vital technology to support its growth. The growth in the Chinese stock market is because the country of 1 billion people is experiencing an industrial revolution with an annual economic growth rate of 10%, and a more free-market capitalist approach to business. With six stock exchanges currently in operation in China, there are great opportunities and need for western companies to offer their IT services in maintaining a well-functioning capital market. For example, an opinion expressed in the article was that there is a multitude of opportunities for technology firms to offer “the latest and greatest in trading solutions.” When China first developed its trading platforms it was on a “proprietary basis.” This is changing however, and they realize the benefit they could gain by partnering and contracting out the work to experienced foreign financial firms.
A key player in providing the technology and platform to support such market activity are companies like Accenture and its partner Deutsche Borse, who provided technology to the Shanghai Stock Exchange. For example, Accenture and Deutche Borse, used its Xetra trading system as a platform and then adapted it for the Chinese market. Accenture’s vision was to create a “robust, scalable trading platform for future innovations and new products.” It won the contract from the Chinese, over IBM, Hewlett-Packard and AtosEuronext.
China also uses western technology, in its Securities Trading Automated Quotations System (STAQ). STAQ is based on the Nasdaq and National Electronic Trading System (NET). Technology provided by western firms, have also benefitted China’s foreign exchange market. The China Foreign Exchange Trade System (CFETS) chose Reuters to help develop its global foreign exchange system.
China’s technological infrastructure is conducive for growth, as major financial corporations find it easy to setup and get their office running, with the availability of internet technology with high speed lines. For example, in the article it mentions “Depository Trust and Clearing Corp,” which heavily relies on technology for its security business, which had no trouble in setting up its operations in Shanghai. The company developed an internet-based system to handle corporate actions such as stock splits, elective dividends and tender offers.
Although China can be seen as a great growth opportunity in expanding financial markets globally, it is still relatively regulated by the Chinese Government and investment by foreign investors is limited to Joint venture (JV) companies. It is however creating opportunities for foreign firms in transforming China’s ambitions into a reality. They need the skills, expertise and technological know-how of western companies to expand its financial markets. With a limited stake in ownership of 33%, foreign companies can partner with local companies through a joint venture. Morgan Stanley and Goldman Sachs for example, are able to penetrate the Chinese market through such measures. They can partake in IPO deals, underwriting, advisory services and creating trading programs. However, the brokerage services industry is not accessible to foreign firms, as the article mentions, it is strictly reserved for the “approximately 120 licensed domestic broker-dealers.”
In the article, I found conflicting views, in that some companies view China as an easy place to do business in terms of its technological infrastructure, and later in the article, traders, describe the volatile situation of China’s trading business, because they are lacking in their internet technology. Bob Ray, senior vice-president of business development at the Chicago Board of Trade (CBOT) believes that there is still an area of weakness in China’s telecommunications infrastructure. Another interesting fact, highlighted in the article, was that the Chinese authorities do very well is their ability to learn from overseas companies and leverage the IT skills that foreign firms can bring. I believe that the Chinese financial markets have greatly benefitted and will continue to benefit from the technology developed by western firms, which have more experience and know-how from developed markets such as the NYSE, Nasdaq and CBOT.
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4 comments:
Deepak- this article is a good follow up to our discussion on overseas markets and especially Shenzhen Stock Exchange. In that article we learn about the challenges in developing a robust telecommunications network to share information. Do any of the vendors mentioned in this article address the underlying infrastructure
Deepak, I really thought your article was well described. It enabled me to learn a lot about China's current trading situation. For instance, I didn't even know they had 6 stock exchanges there. Also, I agree with you that China is benefitting from the Western technology. Such an emerging country would definitely go further if only it had all the IT infracstructures available. But this is getting much better now for the country according to your article. Good article!
Fatou
Deepak-I thought you did a good job of in describing the challenges China will face with the move to new technology. I didn't know that Goldmansachs and Merrill lynch had 33% stake in the Chinese market. The fact that the government regulates and is against capitalism. It was interesting to see China utilizing Western technology to fuel its innovation and emerge and compete with western companies. I thought you did a great job in analyzing the article.
Deepak, you posted a really interesting article. My only question is that is China's overall environment another fear for overseas investing?
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