Origins

Chapter 1 describes the rise of universal banks in the U.S. during the late nineteenth and early twentieth centuries. Large commercial banks in New York and Chicago entered the securities business in the late nineteenth century by forming alliances with leading investment banks. In 1902, the federal regulator of national banks (the Comptroller of the Currency) told national banks that they could not underwrite or trade in securities except for government bonds. Large national banks evaded that prohibition by establishing securities affiliates. Securities affiliates of national banks survived challenges from the Justice Department, Congress, and the Comptroller of the Currency between 1911 and 1920. Universal banks and their securities affiliates prospered during the 1920s with the enthusiastic support of the Harding and Coolidge administrations. The survival and growth of universal banks during the early twentieth century demonstrated their ability to overcome political and regulatory obstacles.

An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter?

In this paper, we use a fully anonymized dataset provided by the German Savings Banks Association (DSGV) to analyse which savings banks have expanded into fee-producing activities more quickly. In addition, we investigate whether their profitability and stability is correlated with the share of their fee and commission income. Notably, we examine whether the effect on bank profitability differs depending on the type of fee and commission income. Our results support the view that savings banks with low net interest margins are under greater pressure to expand into fee-producing activities. They further suggest that savings banks with a higher share of fee and commission income, in particular from payment services and securities business, also have a higher profitability. The Z-score also correlates positively with the share of securities business income, possibly because it responds to different shocks than net interest income and, therefore, offers a large diversification potential. Zusammenfassung In diesem Paper verwenden wir einen vollständig anonymisierten Datensatz des Deutschen Sparkassen- und Giroverbands (DSGV), um zu untersuchen, welche Sparkassen ihr Provisionsgeschäft schneller ausgebaut haben. Außerdem analysieren wir, wie stark die Profitabilität und Stabilität dieser Banken mit dem Anteil des Provisionseinkommens am gesamten operativen Einkommen korreliert sind. Zu beachten ist, dass wir dabei nach der Art des Provisionseinkommens unterscheiden. Unsere Ergebnisse stützen die Hypothese, dass Sparkassen mit einer hohen Zinsmarge unter geringerem Druck stehen, ihr Provisionsgeschäft auszubauen. Sie lassen ferner darauf schließen, dass Sparkassen mit einem Anteil an Provisionseinkommen aus dem Zahlungsverkehr und dem Wertpapiergeschäft eine höhere Profitabilität haben. Der Z-Score korreliert ebenfalls positiv mit dem Anteil an Provisionseinkommen aus dem Wertpapiergeschäft, möglicherweise weil es anderen Schocks ausgesetzt ist als das Zinseinkommen und deshalb ein großes Diversifikationspotential birgt. JEL Classification: G20, G21, G29

Investigation of the Linkage among China’s Macroeconomy, Stock Market and Real Estate Market

As two important constituents of China’s macro economy, there are a variety of relationships among China’s stock market, real estate market and its macro economy. In order to investigate these relationships, in this paper, especially with the Macroeconomic Boom Index reflecting China’s macro economy, we use cointegration theory and Granger analysis to demonstrate that there are long-term equilibrium relationship and bidirectional causality between the macro economy and the securities business, also between the macro economy and the real estate market, however, this kind of long-term Equilibrium relationship and bidirectional causality appears very weak.

Straight-Thought Processing Adoption

Free trading has been instrumental in the enormous growth of the number and volume of cross-border trading transactions across all industries. In 2000, volume at the National Securities Clearing Corporation (NSCC) reached 18.1 million securities transactions, with actual daily share volumes regularly exceeding 5 billion shares in major financial markets (Depository Trust and Clearing Corporation [DTCC], 2000). Securities trading starts with either an individual or a business institution expressing desire to purchase securities. While the process is deceptively simple, approximately $1.8 trillion of securities trades remain unsettled and outstanding every business day (David & Kumar, 2000), which poses significant risks to all participants and players in the securities trading cycle. A shorter settlement cycle is seen as an approach to reduce both nonpayment and nondelivery risks to all stakeholders in the trading cycle (Toppen, Smits, & Ribbers, 1998). Compressing settlement cycles needs the redesign and management of securities business processes with significant IT support and involvement. Recent advances in information technology provide ample opportunities for various stakeholders to communicate seamlessly through electronic communication networks (ECNs), enabling both speedier and richer information exchange (Dale, 1996; Venkataraman & Zaheer, 1990). Currently, settlement times largely vary between 2 and 5 days. Constant push from governmental regulatory bodies is expected to reduce this to 1 or less than 1 day, popularly known as T+1/T+0 settlement times (Freund, 1991; Group of Thirty, 1993). While it is possible to achieve straight-through processing (STP) without targeting for T+1/T+0, it is almost impossible to attain T+1/T+0 without STP (Leman, 2003). There is a dearth of empirical research with emphasis on financial securities operations. This article attempts to address an existing void in this area. The first part of this article examines current securities trading operations and STP, and discusses the business drivers of STP. The second part of the article elaborates the factors influencing the adoption of STP by various participants. Finally, the article discusses areas that are amenable to future exploration and empirical research with the aim of ultimately increasing the adoption of STP globally

Laws and Regulations on Proprietary Trading System (PTS) in Japan

In order to improve convenience for investors through competition among stock exchanges, operation of Proprietary Trading Systems (PTS) was authorized as a form of securities business under the Securities and Exchange Act. The Japanese PTS is equivalent to ATS (Alternative Trading System) ECNs (Electronic Communications Network) in the United States and MTF (Multilateral Trading Facilities) under MiFID in the EU. In 1998, ATS ECNs had already started in the United States and Japan’s PTS followed the US model. Telecommunication and information technologies and computer technologies made PTS possible, and PTS make the border between the market and brokers ambiguous. Traditional regulations on broker-dealers and stock exchanges will inevitably be reviewed and regulations on securities markets will have to be reformed.

Laws and Regulations on Proprietary Trading System (PTS) in Japan

In order to improve convenience for investors through competition among stock exchanges, operation of Proprietary Trading Systems (PTS) was authorized as a form of securities business under the Securities and Exchange Act. The Japanese PTS is equivalent to ATS (Alternative Trading System), ECN (Electronic Communications Network) in the United States and MTF (Multilateral Trading Facilities) under MiFID in the EU. In 1998, ATS and ECN had already started in the United States and Japan’s PTS followed the U.S. model. Telecommunication and information technologies and computer technologies made PTS possible, and PTS makes the border between the market and brokers ambiguous. Traditional regulations on broker-dealers and stock exchanges will inevitably be reviewed and regulations on securities markets will have to be reformed.