1. Trading Automation and Developing Equity Markets World Bank Finance Forum 2002 June 21, 2002 Dr. Benn Steil Council on Foreign Relations

2. The Impact of Trading Automation  Trading costs  Cost of equity capital  US vs. Europe  Exchange governance and business strategy  Implications for developing equity markets

3. Automation and Trading Costs Source: Domowitz and Steil (2002) Data Source: Large US mutual fund, 1992-1996

4. Automation and Trading Costs Source: Domowitz and Steil (2002) Data Source: Large US mutual fund, 1992-1996

5. Automation and Cost of Capital Source: Domowitz and Steil (2002)

6. Automation and Cost of Capital Source: Domowitz and Steil (2002)

7. Trading Costs: US vs Europe *France, Germany, Italy, The Netherlands, Spain, Sweden, Switzerland Source: Domowitz, Glen and Madhavan (2001) Domowitz and Steil (2002)

8. Automation and Exchanges Trading systems Access Pricing Revenues Governance

9. Demutualized Exchanges Completed Demutualizations Stockholm Stock Exchange (1993) Tradepoint / virt-x (never mutualized) (1995) Helsinki Stock Exchange (1995) Copenhagen Stock Exchange (1996) Amsterdam Exchanges (1997) Borsa Italiana (1997) Australian Stock Exchange (1998) Iceland Stock Exchange (1999) Athens Stock Exchange (1999) Stock Exchange of Singapore (1999) SIMEX (1999) LIFFE (1999) Toronto Stock Exchange (2000) Sydney Futures Exchange (2000) New York Mercantile Exchange (2000) Hong Kong Stock Exchange (2000) London Stock Exchange (2000) Deutsche Börse (2001) Oslo Exchanges (2001) Euronext (2001) ArcaEx (never mutualized) (2002) International Securities Exchange (2002) Agreements or Board Proposals for Demutualizations and Public Offerings Bolsas & Mercados Espanoles Chicago Board Options Exchange Chicago Board of Trade Chicago Mercantile Exchange International Petroleum Exchange London Metal Exchange Nasdaq New Zealand Stock Exchange Nymex Swiss Exchange Tokyo Stock Exchange

10. Automation and Exchanges Trading systems Access Pricing Revenues Governance Consolidation

11. Exchange Mergers and Alliances: 1997-2002 Key: I=implemented A=agreed N=being negotiated

12. Implications for Developing Equity Markets Trading systems : market architecture Trading systems: build vs. buy Access Exchange governance Foreign ownership Post-trade systems

13. Trading System Operator CSD Operator Exchange National Payments System Computer Operations Computer Operations

14. Implications for Developing Equity Markets Trading systems : market architecture Trading systems: build vs. buy Access Exchange governance Foreign ownership Post-trade systems Regulation of market functions: the case of listing