Vol 3 No.

10 May 21, 2012

developments that matter in financial markets

Trends in Global Stock Markets

We are seeing an important changea move towards an increase in financing of the world economy by securities markets. David Wright, IOSCO Secretary General

Evolution of Stock Exchanges

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The first major stock exchange was established in Amsterdam in 1602 in order to trade the stocks of the Dutch East India Company. Since then, the spread of stock markets globally has been spectacular. In 1980, of the 154 member-countries in the United Nations (UN), 59 countries had a stock exchange and in July 2010, out of 192 members of the UN, 134 hosted a stock exchange and another 13 were covered by a regional stock exchange arrangement, such as East Caribbean Securities Exchange and West Africa Regional Exchange. Currently, only 21 countries with a population of over one million do not have a stock exchange and notable among them are Ethiopia, Congo, Myanmar, North Korea, Yemen, Madagascar, Angola, Chad, and Cuba.

capitalization and trading values and volumes in relation to the whole financial system and economy and the participation of companies and investors in stock markets. Global stock markets are slowly transforming bank-dominated economies to market-dominated economies through financial intermediation.

Changing Contours of Stock Markets

Growth of Stock Markets

The growth of stock markets has been steady in terms of size. In January 2012, there were approximately 46,442 listed companies in the world, almost twice more than 20 years earlier. The global stock market capitalization (market cap) was close to $50.61 trillion at the end of January 2012, five times more than the market cap in 1990. This represented nearly 100 percent of the worlds gross domestic product (GDP), while in 1913 (at the end of a long period of dynamic stock market development) it was close to 50 percent. However, the growth of stock markets is uneven across regions. The following ten stock exchanges registered significant growth in the last decade and are ranked top in terms of market capitalization. Top Ten Stock Exchanges as of March 2012 US (NYSE Euronext) US (Nasdaq OMX) Japan (Tokyo Stock Exchange) UK (London Stock Exchange Group) Europe (NYSE Euronext) Hong Kong- (Hong Kong Exchanges and Clearing Ltd) China (Shanghai Stock Exchange) Canada (Toronto Stock Exchange) Brazil (BM&FBOVESPA) Germany (Deutsche Borse)
Source: WFE

Stock exchanges started functioning as physical places where trading took place. Some of the best-known international exchanges include New York Stock Exchange (NYSE), which was formed in 1792, London Stock Exchange (1801) and Chicago Board of Trade (now part of the CME Group), which has been trading futures contracts since 1851. The advent of electronic trading has eliminated the need for exchanges to be physical places. Indeed, many traditional trading floors are closing, and the communication of orders and executions are being conducted entirely electronically. London Stock Exchange and NASDAQ Stock Market are completely electronic, as is Eurex, the worlds second-largest futures exchange. Many others are also phasing out floor trading or offering both floor and electronic trading. Derivatives exchanges such as the CME Group maintain both old-style pits and electronic trading. The ownership of exchanges broadly falls into one of the following categories and member exchanges of the World Federation of Exchanges are classified as follows:

Forthcoming Programme

GLOBAL FINANCIAL MARKETS EXPOSURE PROGRAMME

August 30 - September 15, 2012 SHANGHAI BEIJING SEOUL HONG KONG SINGAPORE KUALA LUMPUR BANGKOK

Market Capitalization (US$ bn) 13,358.35 4,540.58 3,625.48 3,505.65 2,710.31 2,547.05 2,460.18 2,033.83 1,401.00 1,400.03

Ownership Pattern
Ownership Category As of Dec 2010 (in %) Listed 44 Demutualized 18 Private (Bourses registered as private companies) 14 Associations (Access to membership restricted) 6 Others (Govt. /Quasi Govt. owned) 18
Source: WFE

Global Equity Derivatives Markets

For details, contact: Afzal Saboowala Mobile: +91 99302 67954 Maggie Rodrigues Mobile: +91 99302 68329 Email: globexe@ftkmc.com

The development of stock markets is a quintessential part of globalization and is reflected in the magnitude of stock market activity in terms of market An FTKMC Publication
For copies, contact: Mr Afzal Saboowala Tel: +91 99302 67954 Email: afzal.saboowala@ftkmc.com

Among the exchange-traded derivatives segments, the number of contracts traded in the equity derivatives products has been witnessing tremendous growth in recent years. According to an International Options Markets Association (IOMA) survey released in May 2012 by World Federation of Exchanges, equity derivatives accounted for a lions share of total derivatives contracts in 2011, i.e., over 15 billion out of over 25 billion contracts. Contributed by M Ravindran

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Disclaimer: This Newsletter is prepared to enhance awareness and for information only. The information is taken from sources believed to be reliable but is not guaranteed by FTKMC as to its accuracy. The contents are not meant for taking decisions of any strategic nature or for investments, for which FTKMC will not be responsible.