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Page last updated
February 15, 2003




Meeting the challenge:
Stock markets in the new millennium

The new century will hold many challenges for stock markets beyond making sure their computer clocks turn properly at midnight on January 1, 2000. There will be three very powerful forces guiding the future of stock markets worldwide: The globalization of the marketplace, changing global demographics, and the need to incorporate the latest technology. Markets that fail any of these challenges will fail.

The world’s capital is soaring across boundaries and is more fluid than ever. Global demand for investment capital continues to skyrocket. Purchases of U.S. securities from outside the United States have nearly quadrupled between 1990 and 1998, to $15 trillion in 1998 from $4 trillion in 1990. In the same way, U.S. purchases of foreign securities have nearly quintupled during the same period, to almost $5 trillion in 1998, from less than $1 trillion in 1990

By the time the new millennium begins, global debt and equity market capitalization will have more than doubled in the 1990s—from $23 trillion in 1990, to an estimated $51 trillion in 2000. Worldwide mutual fund investments tripled between 1991 and 1997, to $7.2 trillion in 1997 from $2.4 trillion in 1991—and may to reach $13 trillion by 2000.

There is going to be a huge pool of capital on world stock markets as the new century dawns. Well designed, effective markets will facilitate capital formation and capital flows. Poorly designed, ineffective markets will hurt capital formation and reduce standards of living.

Making The Links

At Nasdaq®, our strategy to deal with this globalization is to build a “Market of Markets,” which will link pools of capital worldwide. Nasdaq’s combination with the American Stock Exchange® in creating The Nasdaq-Amex Market GroupSM last November, was the first step in this direction.

These are our seven key objectives:

to increase shareholder value;

to maximize liquidity;

to increase investor confidence;

to provide the fairest possible execution;

to provide the best available price discovery;

to improve efficiency for our Market Makers; and

to reduce investor trading costs.

To bring in the world’s investors, we envision bringing all securities into the same trading venue to provide seamless, 24-hour real-time trading of both Nasdaq and other market securities. Today we are working with other markets in the U.S., Europe, and Asia about how we can link to their markets to promote information sharing over common Web sites. Our recently announced joint Web site with The Stock Exchange of Hong Kong (www.porttracker.nasdaq-sehk.com) will be followed by a similar project with Singapore and then Shanghai. The next step will be dual listings. Eventually, transactional links will connect capital markets worldwide so that investors can trade securities anytime and anywhere over a seamless network.

Another powerful force that will affect markets’ future is the world’s changing demographics. In the United States, we see it especially in the “baby boomer” investor phenomenon—along with their children who are now adults and investors themselves. Many Americans have concluded that they can no longer rely on Social Security for their retirement, making investing now a very sound, and wise, value proposition.

But the demographic issue is really global in its impact. Aging populations worldwide, inadequate financing of public pensions, and too few workers supporting too many retirees is not just an American phenomenon; it is happening in Europe, in Asia, and in the developing world. In fact, the country that has gone furthest in investing public pension assets in equities is Chile.

The technological challenge ahead is the third—and perhaps most crucial—major issue affecting the securities marketplace. We can see early signs of it in the rush to online investing via the Internet. One predictions forecasts that worldwide Internet use will grow by 60 percent on English-speaking sites by next year (and double in non-English sites), to a total of more than 160 million users worldwide. The boom in online stock trading will only grow with that curve.

Today, we believe that about 25 percent of U.S. retail stock trades are made by online investors, and the number of online brokerage accounts will soon top 10 million. The number of online investors in the U.S. is likely to more than quadruple by 2002, to almost 23 million investors. At Nasdaq, we estimate that 20 percent of all orders are entered online today, and we think that could grow to 70 percent eventually. It’s been said that if the Internet didn’t already exist, baby boomers would have had to invent it—if for no other reason than to check up on their portfolios.

Making Technology Work

For stock markets, the choice is simple. Either we bring new technology into our markets, or others will do it instead. At Nasdaq, we’ve made a conscious choice to bring the latest online and trading technology into our market, with all the difficulties this presents to traditional ways of doing things.Fortunately, we already have a very formidable technology infrastructure, including:

The world’s largest real-time net-work ­ more than 2,000 telecommunications “points of presence (access points).

Network-wide simultaneity ­ information arrives everywhere on our network within 320 milliseconds.

Peak share volume ­ 1.34 billion.

Average Daily share ­ 965 million, from January through April, 1999.

Peak transaction rate ­ 1,200 transactions per second.

Average daily Web site hits ­ 12 million.

Peak daily Web site hits ­ 20 million.

Intranet weekly hits ­ 1.2 million.

We are also expanding our trading network to accommodate a two-billion-share day this year, a four-billion-share day by 2000, and the ability to scale up to eight billion shares a day after that. We’re also utilizing various partners in our technology upgrades; in conjunction with broker/dealers, we are implementing OptiMark Technologies’ sophisticated order crossing technology. OptiMark is a supercomputer-aided system that is programmed to maximize investor satisfaction across a wide range of investor price and size preferences.

In the new century, markets also should prepared to deal with the inevitable market volatility. Internet stocks, especially much-anticipated (and sometimes hyped) initial public offerings, and the day-trading boom, will combine to create volatility. While markets are doing their part to research and implement ways to help control this, markets also will need to anticipate the ensuing spikes of volumes.

Extended trading hours are also a real possibility in the near future, at Nasdaq and other markets. Nasdaq has a committee studying the issue now, and we are considering the possibility of extending our market hours until as late as 9 p.m. U.S. Eastern Time to offer investors—especially those on the West Coast and outside the U.S.—more time and flexibility. That may mean a longer work day for those in our industry and will be a challenge for markets worldwide.

Extended hours, however, bring extended possibilities in the new global environment. This move toward more interconnection holds true for stock markets and exchanges wherever they may be. The world is racing toward more electronic and network-based trading. In the not-too-distant future, we expect to see a convergence of information, quotation, and execution platforms. Technology, links among markets, and changing demographics will be primary issues in the forefront of stock markets’ agendas in the 21st century. To meet our investors and issuers needs, and access, we must keep pace with these issues in order to prosper in the new millennium.

Alfred R. Berkeley, III

President of The Nasdaq Stock Market®. Prior to his appointment in 1996, he was a managing director and senior banker in the corporate finance department of Alex Brown & Sons, Inc., financing computer software and electronic commerce companies. Berkeley is a graduate of the Wharton School at the University of Pennsylvania where he received an MBA in 1968 and the University of Virginia where he received a BA in 1966. Since its debut as the world’s first electronic stock market, The Nasdaq Stock Market® has been at the forefront of innovation, using technology to bring millions of investors together with the world’s leading companies. Today, The Nasdaq Stock Market lists nearly 5,400 companies and trades more shares per day than any other major U.S. market. It operates under the management of The Nasdaq-Amex Market GroupSM, a subsidiary of the National Association of Securities Dealers, Inc.


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