Financial centre

The Financial District, Lower Manhattan, includes Wall Street, in New York City, September 2014. However, hedge funds and other financial firms have expanded northward to Midtown Manhattan.^[1][2]

A financial centre is a global city that is home to a large number of internationally significant banks, businesses, and stock exchanges. An international financial centre, sometimes abbreviated to IFC, is a non-specific term usually used to describe an important participant in international financial market trading, usually having at least one major stock market.

Global Financial Centres Index

The City of London is composed almost entirely of financial service companies.[3]

The Global Financial Centres Index is compiled by the London-based British think-tank Z/Yen and is sponsored annually by the Qatar Financial Centre Authority.^[4] As of October 2014, the top ten centres worldwide according to the Global Financial Centres Index in the world are:^[5]

Rank	Change	Centre	Rating
1		New York City	778
2		London	777
3		Hong Kong	756
4		Singapore	746
5	5	San Francisco	719
6		Tokyo	718
7	2	Zurich	717
8	1	Seoul	715
9	1	Boston	705
10	3	Washington, D.C.	704

International Financial Centres Development Index

The City of Hong Kong from the Peak

The International Financial Centres Development Index is compiled by the Xinhua News Agency of China with the Chicago Mercantile Exchange and Dow Jones & Company of the United States, and is known as the Xinhua-Dow Jones International Financial Centers Development Index. According to the 2014 Xinhua-Dow Jones International Financial Centres Development Index, the top ten financial centres in the world are:^[6]

Rank	Centre	Rating
1	New York City	87.72
2	London	86.64
3	Tokyo	84.57
4	Singapore	77.23
5	Hong Kong	77.10
5	Shanghai	77.10
7	Paris	64.83
8	Frankfurt	60.27
9	Beijing	59.98
10	Chicago	58.22

Comparisons

The New York Stock Exchange on Wall Street, the world's largest stock exchange per total market capitalisation of its listed companies.^[7]

The London Stock Exchange

The International Finance Centre in Hong Kong

The Tokyo Stock Exchange

Frankfurt is the financial centre of the Eurozone

• New York City. During much of the second half of the 20th century, the United States and its financial capital, New York City, were the leaders. But over the past few decades, with the rise of a multipolar world with new regional powers and global capitalism, numerous financial centres have challenged the predominance of Wall Street, particularly from London and also Asia, which some analysts believe will be the focus of new worldwide growth. One source described New York as extending its lead as the world's centre of finance in November 2014; according to Kinetic Partners, "New York has proven that it can draw and maintain institutions that believe it is the best place to grow their businesses".^[8] One analyst suggested three prime factors for success as a financial city:

1. a pool of money to lend or invest
2. a decent legal framework
3. high-quality human resources^[9]

In 2014, NYSE Euronext, the operator of the New York Stock Exchange and NYSE LIFFE, won a contract to administer the London interbank offered rate.^[10][11] The new administrator is NYSE Euronext Rates Administration Limited,^[12] a London-based, UK-registered subsidiary of NYSE Euronext, regulated by the UK’s Financial Conduct Authority.^[13]

• London. London continues to maintain a very high financial profile. However, the City of London, like New York, has faced new competitors, including fast-rising eastern financial centres such as Hong Kong and Shanghai. Each centre's offering includes differing tax rules and regulatory environments.^[14] There is a perception that "regulatory scrutiny is more burdensome in the United States than in London",^[15] which has a "transparent and reliable legal system".^[16]

• Hong Kong. In 2010, the Hong Kong Stock Exchange raised nearly $53 billion in initial public offerings (IPO), compared with only $42 billion in the U.S. and $16 billion (£10 billion) in London.^[15][17] Hong Kong was the site of the world's largest IPO in 2006: that of the $19.1 billion Industrial and Commercial Bank of China.^[18] Hedge funds are doing well in Hong Kong with increased growth from 2006 to 2010.^[17] One estimate in 2009 was that the Hong Kong stock market was the world's seventh largest and noted that 70% of the world's 100 largest banks were based in the city.^[19]

• Tokyo. One report suggests that Japanese authorities are working on plans to transform Tokyo but have met with mixed success, noting that "initial drafts suggest that Japan's economic specialists are having trouble figuring out the secret of the Western financial centers' success."^[20] Efforts include more English-speaking restaurants and services and the building of many new office buildings in Tokyo, but more powerful stimuli such as lower taxes have been neglected and a relative aversion to finance.^[20]

• Luxembourg. The Luxembourg financial centre is the largest investment fund centre in Europe, and second in the world after the United States. It is the leading private banking centre in the Eurozone and the largest captive reinsurance centre in Europe. 152 banks from 27 different countries are established in Luxembourg.^[21] The country is also the third largest renminbi centre in the world by numbers, in certain activities such as deposits, loans, bond listing and investment funds.^[22] Three of the largest Chinese banks have their European hub in Luxembourg (ICBC, Bank of China, China Construction Bank).

• Frankfurt. The city is primarily seen as a competitor to London, given the location of both cities within the European Union.^[23] It is the seat of Deutsche Börse, one of the leading stock exchanges and derivatives markets operators in the world, and the European Central Bank, which sets the monetary policy for the single European currency, the euro; in addition, in 2014 the European Central Bank took over responsibility for banking supervision in the eurozone, further increasing the importance of Frankfurt as the banking centre for the 18 countries which form the eurozone. It is also the seat of Deutsche Bundesbank, the German central bank responsible for the monetary policy of the Deutsche Mark before the introduction of the euro.

• Seoul. South Korea's capital has been the world's fastest rising financial center since the late-2000s recession. In March 2009, Seoul ranked 53rd among global financial centers; by March 2012, Seoul had skyrocketed to number 9.^[24] Seoul has continued to build on its success with the completion of the International Financial Center Seoul in 2013. It ranked 7th in the 2015 Global Financial Centres Index, recording the highest growth in rating among the top ten cities.

• Chicago. The Illinois city has the "world’s largest derivatives market" when the Chicago Mercantile Exchange and the Chicago Board of Trade merged in 2007, under the CME Group.^[15]

• Shanghai. Official efforts have been directed to making Pudong a financial leader by 2010.^[25] Efforts during the 1990s were mixed, but in the early 21st century, Shanghai gained ground. Factors such as a "protective banking sector" and a "highly restricted capital market" have held the city back, according to one analysis in 2009 in China Daily.^[26] Shanghai has done well in terms of market capitalisation but it needs to "attract an army of money managers, lawyers, accountants, actuaries, brokers and other professionals, Chinese and foreign," to enable it to compete with New York and London.^[27] China is generating tremendous new capital, which makes it easier to stage initial public offerings of state-owned companies in places like Shanghai.^[18]

• Sydney. Australia's most populous city is a major financial and business services hub not only for Australia but for the Asia-Pacific region. The Sydney State Savings Bank building is located on Martin Place in the central business district, home to the Sydney Stock Exchange and an array of business headquarters.

• Toronto. The city is a leading market for Canada's largest financial institutions and large insurance companies. It has also become one of the fastest growing financial centres following the late-2000s recession and the stability of the Canadian banking system. Most of the financial industry is concentrated along Bay Street, where the Toronto Stock Exchange is also located.

• Singapore. This city was mentioned as a competitor given its proximity to Asian markets, but not due to the fact that it was a major market itself. ^[16]

• Others. Cities such as São Paulo and Johannesburg and other "would-be hubs" lack liquidity and the "skills base," according to one source.^[9] Financial industries in countries and regions such as the Indian subcontinent and Malaysia require not only well-trained people but the "whole institutional infrastructure of laws, regulations, contracts, trust and disclosure" which takes time to happen.^[9] *

New York Times analyst Daniel Gross wrote:

An example is the alternative trading platform known as BATS, based in Kansas City, which came "out of nowhere to gain a 9 percent share in the market for trading United States stocks."^[18] The firm has computers in the U.S. state of New Jersey, two salespersons in New York City, but the remaining 33 employees work in a center in Kansas.^[18]

Offshore financial centres

A Bermudian banknote. Bermuda is a well known offshore financial centre.

An offshore financial centre, although not precisely defined, is usually a small, low-tax jurisdiction specialising in providing corporate and commercial services to non-residents in the form of offshore companies and the investment of offshore funds.

The term offshore financial centre is a relatively modern neologism, first coined in the 1980s.^[28] Although the terms are not synonymous, many leading offshore finance centres are regarded as "tax havens", and the lack of precise definition often leads to confusion between the concepts. In Tolley's International Initiatives Affecting Financial Havens^[29] the glossary of terms defines an "offshore financial centre" in forthright terms as "a politically correct term for what used to be called a tax haven." However, this is qualified by adding "The use of this term makes the important point that a jurisdiction may provide specific facilities for offshore financial centres without being in any general sense a tax haven."

In 2009 the International Financial Centres Forum (IFC Forum) was established by a group of professional service firms and businesses with offices in the leading offshore centres.^[30] According to its website, the IFC Forum aims to provide authoritative and balanced information about the role of the small international financial centres in the global economy.

See also

• Geography of finance

References

External links

• The Competitive Position of London as a Global Financial Centre
• International financial centres
• Global Financial Centres Index