Evaluation of maturity of Financial Markets in Different countries for an IT company

• Market capitalization of each countries and the market capitalization to GDP ratio (Financial market depth)-The volume of total market capitalization determines the IT requirements to execute the high volume of trades at a high speed. Other metric, which was considered are the volume of transaction each day. However, the fluctuation in volume and lack of data renders it difficult to gather information for each of the countries that we might want to study.

–      The ranking should be first given based on the total market capitalization in these countries followed by allocation of weights that will be used in taking the weighted averages later. For example, if there are 30 countries in consideration; rank 1 should be given the weight of 30, the second ranked country should be given the weight of 29 and so on so forth. However, this criterion excludes the factor that some countries are small but have a fairly well developed and mature equity markets. The market capitalization to GDP ratio helps us take this factor in consideration. The countries should then be ranked based on market capitalization to GDP ratio. Again the number 1 country is given a weight of 30, the second ranked country was given the weight of 29 and so on so forth.

• IT opportunity in each of these countries and IT opportunity to GDP ratio- We are doing this ranking to get the perspective, keeping in view opportunity for an IT company. Hence we had to take in consideration the IT opportunity in these countries within the ‘Financial Market’ domain. There are various firms specialize in giving this data such as Tower Group, Celent and Tabb Group. Otherwise, we can also triangulate by taking top down approach. We can look at the IT expenditure as a percentage of the revenues by leading Financial Markets firms and then look at the total industry size to calculate the total IT expenditure. We can take a lot more variables if we want to increase the precision.

–      The rankings should be given the weights in the same way as explained earlier. Further, for the same reason explained above we will take the IT opportunity to GDP ratio to analyze the maturity of the markets

• Equal weights to the criteria given earlier- All the three criteria are      given the same weights while taking out the composite ranking
• Other factors taken into consideration- 1) Bond market size (both government & private) and 2)banking assets should be taken into consideration for countries where we have the data.  

–      For example, one of the reasons why China is not considered a matured market though it has a developed equity market and has high IT opportunity, is its rather underdeveloped corporate bond market. Further the high growth rate of IT opportunity shows that the ‘Financial Markets’ is not matured in China as of now. So, we can have more than one criterion substantiating each of the rankings. We can also take into consideration the assets held by diversified financial companies headquartered in these countries (Forbes list). This actually clarifies further that the countries under consideration have still to catch up with the leading countries in the industry.

–      The ratio of revenue generated from net retail and commercial banking segment to Sell-side (creates securities), Market Infrastructure (enables trading), Buy-side (manages assets) segments combined within the wider Financial Services Sector  definition gives a good indication of the maturity of financial markets. Higher the ratio, lower the maturity.

• Comparison with the developed countries (benchmark for maturity)- The findings from these countries should be studied in light of the performance of the developed countries such as 1) USA, 2) Germany, 3) France, 4) Japan, and 5) UK