Location, location and why it still matters in financial markets

SYDNEY – 28 March 2018

Location is a market characteristic that has traditionally held so much relevance for the financial industry. We see its historical significance everywhere, from the very names of financial exchanges (ASX, NYSE etc…) to the way in which Wall Street became irrevocably synonymous with the market itself.

Not so long ago, the trading floor was the heart of the market, with hand waving and papers passing as trades were executed. In those days, it seemed as though our Australian financial market place felt very isolated from other global markets.

More recently, technology has advanced to lift the activity of the markets off the trading floor, and up into the cloud. Trades are executed electronically using split-second algorithms and from as far afield as London and New York, while the trader can be located anywhere in the world.

It could be said that technology has depleted the need to be in a physical location to execute trades, and that financial markets that previously felt oceans away have now become accessible to all. So have we entered a new era – one in which location is completely irrelevant to financial market performance and participation?

No.

Location, proximity and locality are still every bit as crucial for healthy financial communities, and for two very good reasons.

Firstly, while technology eliminates location as a barrier to accessing a market, financial markets continue to have an inescapable regional aspect to them. They are still governed locally and have local compliance standards to meet, for example. This creates needs that are highly specific to market participants in a particular region. We saw this just last year, when the RG97 reporting requirements demanded local expertise and a quick to market, efficient solution to what could otherwise have been a sizeable headache.

Secondly, the way in which we build technological solutions today (agile, responsive, and in collaboration with clients), requires proximity to the people that use the system. Financial transactions may happen electronically, and we may have removed the human element from trade execution, but people are still very much behind the creation of the financial structures and algorithms that make these trades possible. Human interaction is still essential in co-creation, innovation and in driving everyday value for all users.

The market clearly agrees. Sydney’s Martin Place, that historically housed the major financial institutions of Australia, has now become a FinTech hub that is fondly referred to as “Silicon Place”. This is testament to the fact Tech firms want to be in close proximity to their [market] participants. We need to be within shouting distance to understand market needs, deepen relationships and continue to create value.

So while we see that technology has reduced the need to be in a specific, physical location to carry out financial transactions, the requirement for human collaboration is still prevalent. Like all technology, FinTech is only as valuable as the efficiency problems it solves and its capacity to improve qualitative, human interaction. This can only happen when the whole process is closely observed and understood.

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Yieldbroker is owned, built, and used collaboratively by Australia’s leading Fixed Income market participants. The company has recently moved to new offices at 14 Martin Place in Sydney in the historically significant Colonial Mutual Life Building.

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