Financial centre

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The City of London, England is composed almost entirely of financial service companies.

A financial centre is a global city that is home to a large number of internationally significant banks, businesses, and stock exchanges.

An international financial centre is a non-specific term usually used to describe an important participant in international financial market trading. An international financial centre (sometimes abbreviated to IFC) will usually have at least one major stock market.



[edit] International Financial Centers Development Index

The New York Stock Exchange, the world's largest stock exchange per total market capitalization of its listed companies.[1]

In 2011, the Xinhua News Agency of China, partnering with the Chicago Mercantile Exchange and Dow Jones & Company of the United States, released the Xinhua-Dow Jones International Financial Centers Development Index. According to this index, the top ten financial centers in the world are:[2]

1. United States New York City
2. United Kingdom London
3. Japan Tokyo
4. Hong Kong Hong Kong
5. Singapore Singapore
6. China Shanghai
7. France Paris
8. Germany Frankfurt
9. Australia Sydney
10. Netherlands Amsterdam

[edit] Global Financial Centres Index

The Global Financial Centres Index is compiled by the London-based British think-tank Z/Yen and is published annually by the City of London Corporation.[3] As of 2012, the top ten financial centres according to the Global Financial Centres Index in the world are:[4]

1. United Kingdom London
2. United States New York City
3. Hong Kong Hong Kong
4. Singapore Singapore
5. Japan Tokyo
6. Switzerland Zurich
7. United States Chicago
8. China Shanghai
9. South Korea Seoul
10. Canada Toronto

[edit] Comparisons

Wall Street, the center of American finance.
  • Wall Street. During much of the 20th century, the United States and its financial capital of New York City were the leaders. But over the past few decades, with the rise of a multipolar world with new regional powers and global capitalism, numerous financial centres have challenged Wall Street's predominance, particularly from Asia which some analysts believe will be the focus of new worldwide growth.[5] New York still has strengths in having a "concentration of finance professionals" -- prime brokers, large banks, traders, lawyers, accountants, and private bankers.[6] One analyst suggested the prime factors for success as a financial city were three:
  1. a pool of money to lend or invest
  2. a decent legal framework
  3. high-quality human resources[7]
  • London. Some reports have suggested that the City of London has overtaken New York as a world financial capital.[8] London's merger volume was higher than New York's by $79 billion in 2005 and equity issuance was $130 billion versus $105 billion in the United States.[9] Companies seeking to list their stocks have started going to London before New York.[10] There is a perception that "regulatory scrutiny is more burdensome in the United States than in London"[6][10], which has a "transparent and reliable legal system."[11] One report suggested that London's location between Asia and the U.S. meant that it was particularly suitable when taking into account time zones.[11] American organisations have often sent employees to work in London, and one 2008 estimate suggested that there were approximately 224,000 American workers in Britain.[12]
Skyscrapers in Shanghai in China in 2009.
  • Shanghai. Official efforts have been directed to making Pudong a financial leader by 2010.[13] Efforts during the 1990s were mixed, but in the early 21st century, Shanghai gained ground. Factors such as a "protective banking sector" and a "highly restricted capital market" have held the city back, according to one analysis in 2009 in China Daily.[14] Shanghai has done well in terms of market capitalization but it needs to "attract an army of money managers, lawyers, accountants, actuaries, brokers and other professionals, Chinese and foreign," to enable it to compete with New York and London.[15] China is generating tremendous new capital, which makes it easier to stage initial public offerings of state-owned companies in places like Shanghai.[6]
  • Hong Kong. In 2010, the Hong Kong Stock Exchange raised nearly $53 billion for initial public offerings, compared with only $42 billion for the U.S. and $16 billion (£10 billion) in London.[10][16] Hong Kong was the site of the world's largest I.P.O. in 2006 of the $19.1 billion Industrial and Commercial Bank of China.[6] Hedge funds are doing well in Hong Kong with increased growth from 2006 to 2010.[16] One estimate in 2009 was that the Hong Kong stock market was the world's seventh largest and noted that 70 percent of the world's 100 largest banks were based in the city.[17]
  • Tokyo. One report suggests that Japanese authorities are working on plans to transform Tokyo but have met with mixed success, noting that "initial drafts suggest that Japan’s economic specialists are having trouble figuring out the secret of the Western financial centers’ success."[18] Efforts include more English-speaking restaurants and services and earthquake-resistant offices, but that have neglected more powerful stimuli such as lower taxes and a deep-seated aversion to finance.[18]
  • Singapore. This city was mentioned as a competitor given its proximity to Asian markets.[11]
  • Toronto. The city is a leading market for Canada's largest financial institutions and large insurance companies. It has also become one of the fastest growing financial centres following the late-2000s recession and the stability of the Canadian banking system. Most of the financial industry is concentrated along Bay Street, where the Toronto Stock Exchange is also located.
  • Others. Cities such as São Paulo and Johannesburg and other "would-be hubs" lack liquidity and the "skills base," according to one source.[7] Financial industries in countries and regions such as the Indian subcontinent, Korea and Malaysia require not only well-trained people but the "whole institutional infrastructure of laws, regulations, contracts, trust and disclosure" which takes time to happen.[7] *

New York Times analyst Daniel Gross wrote:

In today’s burgeoning and increasingly integrated global financial markets — a vast, neural spaghetti of wires, Web sites and trading platforms — the N.Y.S.E. is clearly no longer the epicenter. Nor is New York. The largest mutual-fund complexes are in Valley Forge, Pa., Los Angeles and Boston, while trading and money management are spreading globally. Since the end of the cold war, vast pools of capital have been forming overseas, in the Swiss bank accounts of Russian oligarchs, in the Shanghai vaults of Chinese manufacturing magnates and in the coffers of funds controlled by governments in Singapore, Russia, Dubai, Qatar and Saudi Arabia that may amount to some $2.5 trillion. -- Daniel Gross in 2007[6]

An example is the alternative trading platform known as BATS based in Kansas City which came "out of nowhere to gain a 9 percent share in the market for trading United States stocks."[6] The firm has computers in New Jersey, two salespersons in New York City, but the remaining 33 employees work in a centre in Missouri.[6]

[edit] Offshore financial centres

A Bermudian banknote. Bermuda is a well known offshore financial centre.

An offshore financial centre, although not precisely defined, is usually a small, low-tax jurisdiction specialising in providing the corporate and commercial services to non-residents in the form of offshore companies and the investment of offshore funds.

The term offshore financial centre is a relatively modern neologism, first coined in the 1980s.[19] Although the terms are not synonymous, many leading offshore finance centres are regarded as "tax havens", and the lack of precise definitions often leads to confusion between the concepts. In Tolley's International Initiatives Affecting Financial Havens[20] the author in the Glossary of Terms defines an "offshore financial centre" in forthright terms as "a politically correct term for what used to be called a tax haven." However, he then qualifies this by adding "The use of this term makes the important point that a jurisdiction may provide specific facilities for offshore financial centres without being in any general sense a tax haven."

In 2009 the International Financial Centres Forum (IFC Forum) was established by a group of professional service firms and businesses with offices in the leading offshore centres.[21] According to its website, the IFC Forum aims to provide authoritative and balanced information about the role of the small international financial centres in the global economy.

[edit] References

  1. ^ "Market highlights for first half-year 2010". World Federation of Exchanges. Retrieved 2012-03-25. 
  2. ^ "Xinhua-Dow Jones International Financial Centers Development Index". Xinhua and Dow Jones. Retrieved 2011-07-08. 
  3. ^ "AFP: Hong Kong joins NY, London uk as top finance centre". Agence France-Presse. 
  4. ^ "The Global Financial Centres Index 11". Z/Yen. Retrieved 2012-03-19. 
  5. ^ Nisha Gopalan (November 29, 2010). "Stock Brokers Flock to Asia in Search of Growth". Wall Street Journal. Retrieved 2011-01-15. 
  6. ^ a b c d e f g Daniel Gross (October 14, 2007). "The Capital of Capital No More?". The New York Times: Magazine. Retrieved 2011-01-15. 
  7. ^ a b c Daniel Altman (September 30, 2008). "Other financial centers could rise amid crisis". The New York Times: Business. Retrieved 2011-01-15. 
  8. ^ Patrick McGeehan (February 22, 2009). "After Reversal of Fortunes, City Takes a New Look at Wall Street". The New York Times. Retrieved 2011-01-15. 
  9. ^ Heidi N. Moore (March 10, 2008). "DLJ: Wall Street’s Incubator". The Wall Street Journal. Retrieved 2010-01-14. 
  10. ^ a b c d Heather Timmons (October 27, 2006). "New York Isn’t the World’s Undisputed Financial Capital". The New York Times. Retrieved 2011-01-15. 
  11. ^ a b c Beth Gardiner (January 20, 2010). "The London Banking Center Is Beginning to Feel Like Itself Again". The New York Times: Global Business. Retrieved 2011-01-15. 
  12. ^ Julia Werdigier (April 2, 2008). "Paychecks and Passports". The New York Times: Business. Retrieved 2011-01-15. 
  13. ^ Seth Faison (December 13, 1996). "Hong Kong Continues to Eclipse An Economic Rebirth in Shanghai". The New York Times: Business Day. Retrieved 2011-01-15. 
  14. ^ Hong Liang (2009-05-04). "Software for a financial center here". China Daily. Retrieved 2011-01-15. 
  15. ^ Dealbook (March 2, 2010). "Shanghai Opens Doors to Financial World". The New York Times. Retrieved 2011-01-15. 
  16. ^ a b Cathy Holcombe (January 14, 2011). "Hong Kong and the Goldilocks Regulator". Wall Street Journal. Retrieved 2011-01-15. 
  17. ^ (Xinhua) (2009-06-02). "HK, Shenzhen promote financial industry in NY". China Daily. Retrieved 2011-01-15. 
  18. ^ a b Martin Fackler (November 16, 2007). "Tokyo Seeking a Top Niche in Global Finance". The New York Times: World Business. Retrieved 2011-01-15. 
  19. ^ Offshore Financial Centres, Richard Roberts, ISBN 1-85898-155-7
  20. ^ ISBN 0-406-94264-1, Tim Bennett (2001)
  21. ^ "International Financial Centres Forum Launched", Cayman Financial Review, 5 January 2010,, retrieved 16 March 2011 

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