Universe, galaxy, solar system, light, gravity, mass: These are words we might associate with Star Trek, or space travel, or the Big Bang theory. Most of us understand to some extent what each of these words mean, or represent. What if we used these words to describe the future of the world’s financial and trading markets?
Universe = Market
The universe can best be described as the totality of everything that exists, including all physical matter and energy within it. In Financial market terms, the universe is the open platform, the market. The market goes beyond all the fragmented systems within it. The market would have a generic transaction registration, allowing all different types of transactions to be linked by way of a transaction code. This would be the creation or beginning point of a truly global marketplace.
Galaxy = Access
If a market’s starting point is that it is global then it must also be accessible to everyone. The internet will be the main connecting tool for the modern market place. Access would also mean that markets operate on the basis of a level playing field, which in turn would make them more competitive and more efficient. Resources entering the market from Africa should have the same market access as those from Australia, Russia or Brazil, and be subject to uniform rules and regulation.
Solar System = Exchanges
The solar system would consist of a series of interlinked exchanges seamlessly trading global products. Since we have established that as part of the universe, the global market place would have a generic transaction registry then the products on the exchanges would also be fungible. Smaller regional exchanges, doing regional business, would link or be part of bigger, super exchanges, which in turn would be interlinked. This would allow for global products to trade on any of the interlinked super exchanges. These super exchanges might be in regions like Africa, America, Asia, Russia and Europe. The products the exchanges would trade would be global products, such as oil, gold, iron ore, wheat, rice, sugar and so on.
Light = Transparency
Light in the solar system is transparency on the exchange. In order for markets to operate efficiently and at minimum risk they should operate transparently. Transparent markets allow for greater price efficiency and lead to more robust markets.
Gravity = Liquidity
Liquidity in markets provides them with grounding, or gravity. Markets can work wonderfully in theory but unless they have liquidity they will be doomed. Liquidity comes from the buyers and sellers in a marketplace. For example, if you have a fruit market with the freshest products available but no buyers, then the market will fail. Markets need gravity, liquidity.
Mass = Market Transactions
Mass is usually measured in something like kilograms. In this model, we measure mass in terms of number of transactions, quite simply.
Our financial markets today are in distress, to say the least. I watched a recent interview with Alan Greenspan, the former chairman of the Federal Reserve. He was asked if he thought the U.S. economy was heading for a double dip recession. He believed that on its own it was not. He was asked how the Greek debt crisis would affect the United States. He said the U.S. was not exposed to Greek debt, but was exposed to European debt. To me they are one in the same thing. It would follow then that a Greek debt default would lead to a European debt crisis that would affect the U.S. and most likely lead to a double dip recession in America. Yet, the former Federal Reserve chairman preferred to talk in riddles. He has this view because policymakers, like the Federal Reserve, do not really have a global view. The platform from which the Federal Reserve operates is not an open one, and it is fragmented, not global. Our market structures need to modernize. They need to change and reflect the capabilities and needs of the 21st century and beyond.
World financial markets are leading to a big bang. The likelihood that we will see bank failures is very high. That some of these failures will include “too-big-to-fail” banks is certain. There is no such thing as too big to fail. What lies ahead is an opportunity to make real and sustainable change to world markets. While we struggle and debate how the universe was created, we need not struggle on what will come after the big bang in financial markets. We already know. Reform!
Market reform needs to be a collaborative effort. Chris Cook is a Senior Research Fellow at ISRS and we have been banging our ideas together and my Big Bang Theory for Financial Markets is a result of some of this collaboration.
Global Markets are anything but integrated. What if we had a paradigm shift in the way we think, the way we actually do business with each other, between nations. Balanced global trade can only occur if we have transparent, accessible, efficient markets, with standardized contracts and on a standardized platform of global exchange. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is CEO of SBI Markets General Trading LLC, a Dubai-registered trading and advisory company. Barden, 39, has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.