The Role and Performance of UK Capital Markets

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The Role and Performance of UK Capital Markets

Introduction

This study is an attempt to develop a model for studying business-to-business electronic marketplaces in the UK capital markets in terms of their transactional, technological and strategic characteristics. We hypothesize, and attempt to demonstrate, that these characteristics, which we call attributes, “impact their sustained performance”, impact is measured in terms of strength and direction of correlation between the attributes and sustained performance. We use the term “sustained” to mean consistent increase in performance over the last three years, namely 2007, 2008, 2009. Because many of these marketplaces have yet to yield traditional measures of performance, such as the market price of stock, capitalization, net earnings, and profitability, we have used the term “performance” to mean trade volume (in number and dollar terms), market share (in dollar terms) and gross revenue, all of which are tracked by participants in the marketplace to reflect performance in general.

Markets and institutions aggregate small savings of a large number of individuals and make it available for large-scale capital investments. In so doing, they also reduce the risks facing both savers and entrepreneurs by allowing for diversification. This capital mobilization role is socially important even if projects and the firms undertaking them were identical, and therefore funds were randomly allocated to projects.

Background of the study

The outstanding amount of bonds has been steadily increasing over time and since 2008 at a relatively faster pace than before. Net issuance rose sharply in the first two quarters of 2008. After some temporarily decline it reached its peak in 2009 (more than 360 billions of US dollars) and remained at relatively high levels. For its participants, the marketplace has in recent years has been characterized by periods of tremendous growth, fights for survival, corporate demise, mergers and consolidations. On the other hand, thirty-eight new fixed income trading systems were added in 2008 and thirteen in 2009.

If 1999 and 2007 were years of unrestrained growth arid expansion, and 2008 was a year of consolidation, 2009 was a year for the surviving and thriving trading platforms to consolidate their positions in the market and focus on product enhancements. Some participants have folded or merged, although not nearly to the degree observed in 2008 (Bond Market Association 2009). Similarly, of the eight major electronic trading marketplaces active in 1999 in the equities market, three were a result of consolidation of seven companies, one closed down and one new participant emerged in 2009. In the FX market, of the four major participants at the start of this decade, namely FXaII, Fxconnect, Currenex and Atriax, Atriax closed down in April 2009. Business-to-business electronic marketplaces in the UK capital markets that have continued to operate for three years have produced enough measurement parameters. Nevertheless, there is a lack of empirical studies on the impact of attributes on sustained performance. This is not to say that the characteristics of electronic marketplaces in general have not been ...