Investment
Bad News, London and New York: Finance Hubs Are Becoming Obsolete By Paul J. Davies
STAND ON THE STEPS of The Royal Exchange in the heart of the City of London and you can picture the churn of people 200 years ago or more in what was becoming the world’s preeminent financial hub. Stock jobbers, traders and financiers would stream between its great limestone columns with the Bank of England to one side and all surrounded by offices of bankers or trading houses and alleyways to the ever-busy coffee shops. The exchange was where transactions happened, but the coffee shops played an equally important role in the lifeblood of markets as information centers. People hung out there for refreshment and gossip but also all the details of supply and demand. “[T]he coffee men vied with each other in maintaining the supply of a wide variety of domestic and foreign newspapers, news-sheets, journals and bulletins, customs entry forms, auction notices, price-current lists, etc,” according to David Kynaston’s “City of London: The History.” Today, London’s future as a global financial hub is under threat. In the popular discourse, that’s largely due to Britain’s exit from the European Union and the ongoing fights over trade and regulations. But Brexit is barely half the story, and New York faces similar threats. While, JPMorgan Chase & Co. is expanding its Paris office with new trading floors, Goldman Sachs Group Inc. is doing the same in Miami and has been hunting for space in Dallas. What links these moves is the ways technology and regulations have dramatically changed the flow of information in just the past couple of decades. The Covid pandemic showed just how little physical location now matters for many jobs and businesses in finance and gave executives confidence that more operations could be managed remotely. Old hands barely recognize today’s world. 72
January-February 2022
Until relatively recently, human voices were still Heavy traffic outside the Roy the main vehicle for of London, circa 1880. transactions on trading floors and the chatter was full of market information. Traders listened in on conversations and talked to each other and clients to absorb market color: that sense of whether investors were confident or fearful, who owned what and who was interested in selling or buying. Outside the office, deals, tips and preferential treatment could be won in restaurants and bars in a way that is now far harder to implement. The information in all these conversations has become ever more tightly regulated or automated in the 21st century, especially since the financial crisis of 2008. Scandals from insider dealing around takeovers, foreign-exchange trading and the manipulation of the interbank lending rate known as Libor, have revolutionized trading and communication in banks. Telephone calls, instant messages and emails are all recorded for posterity. Personal communications are ever more tightly controlled: Credit Suisse Group AG is seeking access to employees’ personal devices, while JPMorgan was just fined $200 million for not recording everyone’s WhatsApp messages. Compliance is paramount as a deterrent and as a record of how and why everything was done. But it’s not just about scandals — it’s also the rules designed to ensure investors get good prices and the regulations to make market-wide risk monitoring easier. The effect has been to push DAWN
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