International capital markets of the future – the impact of the internet

International capital markets of the future – the impact of the internet (10 December 2001)

• The internet is exercising a sustained influence on the international capital markets. Market activity has become more transparent and transaction costs have fallen. Electronic networks have led to worldwide capital market integration and facilitated direct access for investors.
• The main beneficiaries of these developments are private investors, whose information deficit has become noticeably smaller as a result of the internet. Opportunities hitherto reserved almost exclusively for professional market players are now open to them.
• For new issues the internet is steadily advancing as a significant distribution channel. To shore up their competitive position, major investment banks will have no alternative but to employ internet-based platforms in addition to their traditional outlets. While the internet will make it easier for companies to place their own issues, banks will still not become entirely dispensable.
• For banks, the change in the international markets prompted by the Internet does not represent a threat, but it does represent a great challenge. This is particularly true for trading in securities. Direct banks and online brokers have been able to achieve not inconsiderable market shares and have prompted traditional banks, in turn, to establish online brokerage as an alternative distribution channel.
• Technological progress and the Internet are more serious issues for the exchanges. New, alternative trading platforms, so called electronic communication networks (ECNs), have entered the playing field, prodding national, monopolistic stock exchange clubs of the old school out of their lethargy.
• In the United States ECNs have built up a substantial market position in equity trading, winning significant market share from the traditional exchanges.
• Meanwhile the technological revolution has given rise to a flood of new electronic bond trading systems, not least because the stock exchanges (also those in Europe) were unable to provide an efficient trading platform.
• But not all stock markets and alternative trading platforms will survive. In the medium term a shake-out will take place, either in the form of a business-induced market exodus or mergers with other exchange-based or non-exchange platforms to form more effective units.

This essay is based on an article by Dr Josef Ackermann, Member of the Board of Managing Directors of Deutsche Bank AG, the original of which is published in the ‘Management Handbuch eBanking’ by Jürgen Krumnow and Thomas A. Lange (ed.), Stuttgart: Schäffer-Poeschel, 2001. For any comments, please contact .

For in-depth analysis of the international capital markets of the future, see the Deutsche Bank Research

E-conomics.