This Essay is CopyLeft. Opportunity with New Tech (1986) --- BY DUNCAN FRISSELL --- Global market will be at your fingertips The technological and organizational changes now sweeping the world of international business will alter forever the balance of power among national governments, trans-national corporations, and individuals. Nation states will see their freedom of action diminished, while individuals and corporations will experience new opportunities to enhance their power and freedom of action. What is the driving force behind this power shift? New technology. In the past, businesses and individuals were tied down to one place. Transportation and communication were slow and expensive. Money was largely in physical form, such as gold bullion and coins. The nation state could control those who were within its boundaries, because there was no easy way to move. However, the new technologies that we are becoming familiar with --- telecommunications, computers, and jet travel --- are changing forever the ways business is conducted. The most dramatic changes in recent years have been in the securities markets. New investment forms are springing up overnight. The once staid profession of investment banking has become the hottest game in town. These changes in the U.S. domestic markets are now moving out into the world market. We shall see why these changes have happened and what opportunities have been created for informed investors. We can extrapolate from today's technology and business practices to see what the new world securities market might look like when it is fully developed. The most important technological change that will drive this market is the computer. Large computers have already greatly affected securities trading, and the extension of the computer into every corner of the world market will bring even more profound changes. It wasn't so long ago that a day when 20 million shares were traded on the New York Stock Exchange (NYSE) was a record. Today, 100 million-plus share days are normal. The National Association of Securities Dealers' Automated Quotation System (NASDAQ) allows brokers to trade over-the-counter stocks without an exchange trading floor. Bids and offers are recorded by the NASDAQ computers and trades executed when the prices match. New forms of securities --- money market funds and options on futures contracts, for example --- could not exist without computers to create and control them. Program trading (or computer-directed trading) used by institutional investors has allowed some recent market volatility. This is another example of the effects of these machines. Soon, all investors will be able to participate in the new computerized markets and the effects will be dramatic. Personal computer owners can already send orders by computer to their brokers over the telephone. These are just order entry systems for now, but it seems likely that as the exchanges become more automated, individuals will be able to order trades directly, without using brokers. Lotus Development Corporation's Signal computer program and radio receiver make it possible for microcomputer users to receive special radio broadcasts of up-to-the-minute NYSE stock trades and use the information to instantly update the value of an investment portfolio. In the future, if brokers are by-passed and orders can be placed directly with the exchanges, micro-computers can be programmed to watch the securities markets and call in buy or sell orders automatically, when conditions are right. This is not much different from what your broker does now if you have placed a stop loss order. But you can have your own microcomputer make much more sophisticated decisions about your portfolio if you like. Banking by computer will be expanded internationally so you will be able to order funds transferred from any bank in the world to pay for your securities purchases, and the sales proceeds deposited at any bank. Institutional traders and corporate money managers already have the computers and the contractual arrangements with the stock exchanges and financial institutions that allow them to move and execute trades at will. The increased sophistication of personal computers, together with computer banking and computer stock trading, will extend this power to individuals. Satellites Almost as important as computers has been the development of instant satellite communication. Satellites provide a reliable means of establishing contact between any two points on earth without expensive ground wiring. Ships at sea and aircraft in flight can now be reached via satellite as easily as someone in a neighboring town can be reached by telephone. In a few years, it should be possible to make a small transmitter-receiver that anyone can carry which will communicate via satellite directly, without using large ground stations and receiving antennae. Imagine a small box with a keyboard and a screen, weighing perhaps five pounds. This cross between a computer and a sophisticated telex machine is the tool that will drive the new markets. The computer and the satellite will bind the securities markets of the world together. Changes in the technology available to investors will be matched by changes in the world's stock exchanges. It is now possible to follow the sun around the globe and buy and sell securities 24hours a day. From the Hong Kong Stock Exchange to the London Stock Exchange to the New York Stock Exchange, trading never ceases. Proposals have circulated for years to link these three markets electronically into a single market --- a Big Board, indeed --- and it seems only a matter of time before this becomes reality. New world market The new exchange will soon eliminate human traders and replace trading floors with a computer clearing system like NASDAQ. This will allow trading volume to expand without limit. Bids and offers from all aver the world will be compared and market prices established within the exchange's computers. With this system, the trading volume can reach unprecedented levels, and market movements can be rapid. When all traders can order instant transactions via computer, the volatility of the markets will increase dramatically. Any company or government that worries or upsets investors will discover just how fast markets can react. A few years ago, Continental Illinois Bank was having some financial difficulties. Suddenly, the telexes started pouring in from all over the world ordering major withdrawals, and the bank had to be sold to the FDIC to prevent its failure. Computer trading makes it simple to take your business elsewhere. In the case of the worldwide, 24-hour, computer-cleared market, you can take your business everywhere. A full-time market trading the same securities around the world would differ from existing stock exchanges in another way. It would not be effectively subject to state regulation. Laws governing one exchange would not apply with the same force to a multinational market. Law is a matter of geography. The global exchange does not have any one location. In the absence of a genuine international government (a creation that seems unlikely), the new exchange would exist in a legal vacuum similar to the great medieval trade fairs that were scattered about Europe before the rise of the nation state. The trade fairs were outside the legal system of Europe, which was based on duties owed to local lords. Foreign traders were not under any obligations of fealty. They developed their own rules of behavior, and these rules formed the basis of our commercial law. The Global Securities Market will also develop its own rules to guarantee the honesty of participants, but will not tolerate arbitrary regulation by national governments. It can always take its business elsewhere. Market-forced deregulation is already occurring. After years being a closed market dominated by a few firms, the London Stock Exchange is opening up this month to traders from other countries. This so-called "Big Bang" has caused steep increases not only in the salaries paid experienced traders, as U.S. and other securities dealers establish their new operations, but also in London real estate prices. London hopes to use its location and its reputation to dominate the new world market. The City, London's financial heart, is on the Prime Meridian, right in the middle of the 24-hour trading day, and its hallmark is its history of effective self-regulation. Unlike the New York Stock Exchange, which finds itself hampered by the parochial policies of the U.S. Government, The City has, for some time, been able to serve traders without governmental interference. President Jimmy Carter froze Iranian financial assets in the U.S. during the hostage crisis; whereas Margaret Thatcher did not freeze Argentinian assets when Britain was at war with that nation over the Falkland Islands. The British Government knows better than to destroy the one successful part of its economy. The New York Stock Exchange is also seeking to expand its influence in the new world market. Unfortunately, it is handicapped because it is a small part of the economy of a great power --- the United States --- and because it cannot control its own regulatory framework. Because the U.S. does not need the NYSE in the same way the UK needs The City, the NYSE is vulnerable to regulatory swings. The U.S. Government passes laws and imposes taxes in keeping with current fads, without considering the effect on securities trading. Businesses have had to come up with some very creative solutions to overcome these regulations. For many years, U.S. tax policies have forced U.S. banks to set up offshore subsidiaries on Caribbean islands to make Eurodollar loans, instead of writing them from the U.S. There is hope, however, that the U.S. Government may show more concern for its securities markets in the future. In 1984, after the Reagan Administration effectively ended the issuance of corporate and government securities in bearer form (i.e., without registration of ownership), it was forced to allow foreigners to continue to purchase such securities anonymously via nominee accounts at foreign banks. If it had not permitted such anonymous purchases by foreigners, they would have left the market and reduced the marketability of the instruments needed to finance the large Federal deficit. As the U.S. becomes ever more dependent on outside finance, it will find that it too will have to bow to the requirements of the world market. The changes in technology and market institutions will give small traders powers that large traders have enjoyed for years. The individual investor's freedom of action will be increased at the expense of the ability of governments to control the securities markets. These new opportunities will be opened to all traders who are willing to look beyond the domestic securities market and meet the challenges ahead. ===BOX========================================================== TRACING A COMPUTER TRADE Investor A, aboard his ketch in the South Atlantic is awakened by a computer alarm. Although it is 1 a.m. local time, his investment analysis program has been tracking market activity and signaled him when a particular preset pattern developed in the trading prices of several different securities. Investor A is conservative and likes to approve major trades himself. He orders the computer to sell a large block of shares in Biocom Corp so that he can purchase the stock of other firms. Investor A's computer logs into his trading account on one of the world exchange's computers in London via communication satellite. It enters an offer to sell 10,000 shares of Biocom at just above the last trading price. Meanwhile, In Akron, Ohio (where it is 8 p.m. the previous evening), Investor B's office computer acts upon an earlier request to buy 10,000 shares of Biocom. Investor B, a surgeon, has left the office for the day. In reading professional journals, she has been impressed by a new limb regeneration technique developed by researchers at Biocom. Her computer checks for offers to sell shares of Biocom and enters a bid for 10,000 shares at the last traded price. Investor A's computer accepts the bid and orders that the proceeds from the sale be retained in his exchange account for future purchases. Investor B's computer orders that the funds be transferred from her Faroe Islands bank account to pay for the Biocom purchase. The Exchange's computer adjusts both investor's accounts to reflect the trade. ===BOX==========================================================