The recent spate of mergers and acquisitions among the world’s major financial exchanges — including such players as NYSE, Euronext, CBOT and numerous others — signals that the securities and investments industry is at a flashpoint for globalization on a massive scale.

This is the core finding discussed by TowerGroup managing director of securities and investments, Rob Hegarty, on Thursday at the 2007 TowerGroup Financial Services Business and Technology Conference and Exhibition in Boston.

“Massive change in the capital markets begins with seismic shifts at its core, namely among the exchanges,” said Hegarty. “With the onslaught of merger and acquisition activity in the exchange space in the last 12 months comes a renewed ability to invest and trade globally. Once the core of the capital markets goes global, the rest of the participants will follow in earnest.”

As the exchanges further link the world’s major financial centers, the sell-side firms (brokerages) will intensify their globalization. Brokerage clients — namely investment managers on the buy-side — will soon follow. “This will cause a domino effect, with the ease and convenience of a global market ultimately reaching the retail investor. With the exchanges already out of the gate in a worldwide race for survival, true globalization is just around the corner,” Hegarty noted.

Hegarty also notes that geographic boundaries will soon become less relevant to being a player on the global financial stage. This shift will undoubtedly diminish the dominance of financial centers like New York City, given that strong growth opportunities will be found on all shores.

As well, technology has moved from a supporting role, to that of a primary and required enabler for growth. Connectivity, in particular, is helping to fuel and feed the growth of the capital markets — even as the capital markets provide the funding for technology’s own growth and innovation.

The combination of advanced technology, new geographies, new asset classes, and new business lines is creating once unimaginable opportunities for “landlocked” companies.
However, he notes that the road to globalization still has many potholes, including: concerns over information security; uneven levels of corporate governance; and regulation from one region to another.

“The blurring of lines between the sell-side and buy-side is another fascinating byproduct of the current industry transformation,” adds Hegarty. “Buy-side firms are registering as broker-dealers. Brokers are registering as financial advisors. Hedge funds are registering as both, while sell-side analysts are following the route of traditional traders by migrating over to the buy-side. This is all further indication of how traditional hierarchies and wisdoms are rapidly shifting as the markets themselves adapt to new realities.”