The global financial centres index (GFCI) 2 - Z/Yen

The global financial centres index (GFCI) 2 - Z/Yen


The Global Financial Centres Index is published by the City ofLondon. The authors of the report are Mark Yeandle, MichaelMainelli and Ian Harris of Z/Yen Group Limited.This report is intended as a basis for discussion only. Whilstevery effort has been made to ensure the accuracy andcompleteness of the material in this report, the authors, Z/YenGroup Limited, and the City of London, give no warranty inthat regard and accept no liability for any loss or damageincurred through the use of, or reliance upon, this report orthe information contained herein.September 2007© City of LondonPO Box 270, GuildhallLondonEC2P

The GlobalFinancialCentres IndexSeptember 2007ContentsForeword 11. Executive Summary 52. Background 83. The GFCI 104. Analysis of Financial Centres 174a. Sensitivity 184b. Industry Sectors 244c. Connectivity 285. Instrumental Factors 325a. People Factors 335b. Business Environment Factors 395c. Market Access Factors 465d. Infrastructure Factors 525e. General Competitiveness Factors 576. Financial Centre Assessments 607. Conclusion 648. Appendices 66Appendix A. Methodology 66Appendix B. The Online Questionnaire 70Appendix C. The Instrumental Factors 72Bibliography 78

The Global Financial Centres Index

The Global Financial Centres IndexForewordMichael SnyderChairman, Policy and Resources Committee, City of LondonThe current volatility in global financial markets and the strong impact of this volatility onthe real economy through raised credit costs highlights what a central role financialservices play in maintaining the health and development of the UK and globaleconomies. In making the most effective passage through these troubled waters it ismore important than ever that policy makers should seek to safeguard and improvethe resilience and competitiveness of financial centres.I therefore welcome the Global Financial Centres Index 2 (GFCI 2), the second reportproduced by Z/Yen Group Limited in an ongoing series, which ranks financial centresbased on external benchmarking data and current views of competitiveness. The GFCI2 highlights those factors of most importance to financial services business.The GFCI 2 shows similar findings to GFCI 1, with London edging slightly further ahead ofNew York. London is seen as remaining foremost in all areas of competitiveness –people, business environment, market access, infrastructure and generalcompetitiveness. The UK’s recent 2% cut in corporation tax should assist London’sattractiveness as an international business centre. It also demonstrates the UKGovernment’s commitment to ensuring a supportive international businessenvironment.However, London and its policy makers cannot afford to be complacent. The scale andcost of regulation remains the overriding issue of importance to international financialservices. For London, transport issues have now become as important a concern as theavailability of skilled people, among the factors driving business competitiveness.The GFCI is already proving to be an invaluable tool in tracking issues pertinent tobusiness, generating debate about the factors improving the competitive position ofglobal financial centres and keeping issues important to business high on the politicalagenda. It is also keeping us focussed on the best ways in which the City of London canpursue its vision for a world class city which is constantly being enhanced.I encourage financial services industry professionals around the globe to participate inour ongoing survey at to reinforce the comprehensivenature of the overall Index.Michael SnyderCity of LondonSeptember 20071

The Global Financial Centres IndexChart 1The GFCI WorldVancouverSan FranciscoMontrealTorontoChicagoBostonNew YorkWashington D.C.HamiltonCayman IslandsSao Paulo2

The Global Financial Centres IndexStockholmOsloEdinburghCopenhagenIsle of ManDublin LondonAmsterdamBrussels WarsawChannel Islands Paris FrankfurtMunichLuxembourg PragueZurichGenevaViennaMilanRomeLisbon MadridHelsinkiBeijingSeoulBahrainQatarDubaiMumbaiShanghaiHong KongTokyoOsakaSingaporeJohannesburgSydneyMelbourneWellington3

The Global Financial Centres Index4

The Global Financial Centres Index1. Executive SummaryThe Global Financial Centres Index (GFCI) was first published inMarch 2007 to produce an indicative rating of thecompetitiveness of each major financial centre in the world. TheGFCI enables financial centres to be ranked against each otherand identifies the changing priorities and concerns of financeprofessionals. This report, the second in the series (GFCI 2),includes updates to the external indices used in the GFCI model,additional indices, and changes reflecting the perceptions offinancial services professionals. GFCI 2 also includes someenhancements to the GFCI methodology; GFCI 1 results arerestated throughout GFCI 2 to reflect those enhancements .The top six centres in GFCI 2 have maintained the same rankingsas in GFCI 1. London leads New York slightly in all five areas ofcompetitiveness; people, business environment, market access,infrastructure and general competitiveness. London is a littlefurther ahead of New York than it was in GFCI 1. In GFCI 1 the gapwas seven points on a 1,000 point scale. The gap is now 19 pointsalthough this is still not a significant margin. GFCI 2 shows, again,that London and New York are the two leading global financialcentres. London and New York have slightly increased their leadover the next two strongest centres, Hong Kong and Singapore,and are now 90 points ahead (compared with 88 points ahead inGFCI 1).In GFCI 1, it was clear that Hong Kong and Singapore were theleading Asian centres. These two financial centres are still wellahead of Tokyo. Zurich, a financial centre strongly focused onthe two niche sectors of private banking and assetmanagement, is in 5th place. Frankfurt remains in 6th place andGeneva has moved three places up the rankings to 7th place.Centres that have moved significantly since GFCI 1 includeLuxembourg which has risen by nine positions to 17th, whilstWellington, Hamilton (Bermuda), Warsaw and Lisbon have allfallen.Dubai, Mumbai, Shanghai and Beijing are centres thatrespondents to the online questionnaire believe will becomeincreasingly important and these centres will need to bemonitored closely in future updates of the GFCI. Dubai andMumbai both gained slightly in the GFCI 2 ratings, while Shanghaiand Beijing declined.In GFCI 2, in which we publish the top 50 rated financial centres,18 centres have higher ratings than GFCI 1, 24 centres havelower ratings and one rating has remained unchanged. Sevennew financial centres – the Isle of Man, Munich, Osaka,1 To understand themethodology used tocreate the GFCI,including theenhancements made tothe methodologybetween GFCI 1 andGFCI 2, please refer toAppendix A.5

The Global Financial Centres IndexJohannesburg, Bahrain, Qatar and Sao Paulo – have been added to the GFCImodel and all seven now feature in the top 50 financial centres. Of theoriginal 46 centres in GFCI 1, Moscow, Budapest and Athens have now fallenoutside the top 50.GFCI 1 revealed concerns about the level and quality of regulation in the USAand about the increasing levels of corporate taxation in the UK. In GFCI 2,regulatory issues are again identified as the single most important area ofcompetitiveness. The availability of skilled people was the second mostimportant issue in GFCI 1. Since then, infrastructure issues, with a particularemphasis on transport, have become significantly more prominent and arenow in equal second place with skills.Please participate in the GFCI by rating the financial centres you are familiarwith at:

The Global Financial Centres IndexTable 1The GFCI 2 Ratings of the Top 10 Financial Centres(figures in brackets are the ranks and ratings of GFCI 1 restated on a GFCI 2 basis)London 1 (1) 806 (785) London remains in first place and is particularly well rated with regard to the availabilityof skilled people, regulation and market access. Nearly all key success areas are strong– London is in the top quartile in over 80% of its instrumental factors. The main concernsfor future competitiveness are corporate tax rates and transport infrastructure. Londonhas increased its lead over New York from seven to 19 points.New York 2 (2) 787 (778) New York is also in the top quartile in over 80% of its instrumental factors. People andmarket access are particularly strong. Respondents still regard Sarbanes-Oxley as themost outstanding negative factor. New York is now 90 points ahead of the third placedcentre (slightly further ahead than in GFCI 1 where the gap was 88 points).Hong Kong 3 (3) 697 (690) Hong Kong continues to be a thriving international centre. It has a strong regulatoryenvironment and performs well in all of the key competitiveness areas. As with the otherleading centres, costs are high but this does not seem to detract from overallcompetitiveness. If any Asian centre is to join London and New York as a global financialcentre, Hong Kong is the strongest contender.Singapore 4 (4) 673 (666) Singapore performs well in the key competitiveness areas. Banking regulation isregarded as excellent. It is definitely the second Asian centre and remains 24 pointsbehind Hong Kong – the same gap as in GFCI 1.Zurich 5 (5) 666 (660) Zurich is the strongest niche centre in the GFCI. Private banking and asset managementare its key areas of focus. Zurich continues to perform well in three of the keycompetitiveness areas but loses out slightly on people factors.Frankfurt 6 (6) 649 (648) Frankfurt is the second general financial services centre in Europe and retains a strongbanking focus. Frankfurt continues to suffer from an inflexible labour market. Marketaccess, infrastructure and business environment are good.Geneva 7 (10) 645 (633) Geneva is a strong niche centre similar to Zurich. Private banking and assetmanagement continue to thrive. Geneva scores well for its business environment andgeneral competitiveness, gaining 12 points in GFCI 2. It is now in 7th place and only fourpoints behind Frankfurt.Chicago 8 (8) 639 (638) The number two centre in the USA remains in 8th place. Chicago scores highly forpeople but is let down by its infrastructure and market access rankings. It is alsoaffected by the same regulatory regime as New York. Chicago will not overtake NewYork, but remains a powerful regional centre.Sydney 9 (7) 636 (640) Sydney is a strong national centre with good regulation. It benefits from offering aparticularly high quality of life. Sydney is strong in most of the key competitiveness areasalthough the availability of skilled financial services professionals is rated as low – manyleave for larger English-speaking centres such as London and New York. Sydney hasdropped by two places to 9th but is only three points behind Chicago.Tokyo 10 (9) 625 (634) Tokyo does not fare as well as the other major Asian centres. The reputation of itsregulatory environment is poor and it does not do well on people factors. It scoreswell in terms of infrastructure and market access. The size of the Japanese economymeans that Tokyo will always remain significant. It has dropped nine points sinceGFCI 1 and is now in 10th place.The theoretical maximum GFCI rating is 1,0007

The Global Financial Centres Index2. BackgroundThe Global Financial Centres Index 2 (GFCI) was first published inMarch 2007 to evaluate the competitiveness of financial centresworldwide. The March report (GFCI 1) showed London and NewYork to be the two key global financial centres, with significantlyhigher ratings than the third placed centre, Hong Kong. The GFCIwas designed to be a dynamically updated index and this report,GFCI 2, shows the current position and changes incompetitiveness since GFCI 1.The City of London regularly commissions research on financialcentre competitiveness. The GFCI was designed to extend theCity of London’s research by providing an ongoing rating systemfor financial centres worldwide. In addition to comprehensivecoverage of financial centres, the advantages of the GFCI overthe previous studies are: the use of a wide range of instrumentalfactors which enables better analysis of the factors ofcompetitiveness; a shorter and more direct questionnaire whichleads to a greater response rate; and more frequent updates forcomparison.The main aim of the GFCI is to generate further debate aboutwhich factors are the most influential in making a financial centrecompetitive by providing an ongoing rating system. GFCI 1generated much comment from financial centres around theworld. The response to GFCI 1 has enabled enhancements to theindex – a greater number of financial centres are included in GFCI2, some new instrumental factors are used and a greater numberof centre assessments have been obtained from questionnairerespondents.The GFCI is based on factors of competitiveness which weredetermined by previous research in 2003 3 and 2005 4 , grouped intofive key areas – People; the Business Environment; Market Access;Infrastructure and General Competitiveness.Each of the key indicators covers several aspects ofcompetitiveness:■ People considers the availability of good personnel, theflexibility of the labour market, business education and thedevelopment of ‘human capital’. The 2005 researchmentioned above highlighted this factor as the single mostimportant factor in financial centre competitiveness;■ Business Environment looks at regulation, tax rates, levels ofcorruption, economic freedom and the ease of doing business.Regulation, a major component of the business environment, iscited by questionnaire respondents as a decisive factor in the2 Z/Yen Group Limited, TheGlobal Financial CentresIndex 1, City of London(March 2007).3 Centre for the Study ofFinancial Innovation,Sizing up the City –London’s Ranking as aFinancial Centre,Corporation of London(June 2003).4 Z/Yen Limited, TheCompetitive Position ofLondon as a GlobalFinancial Centre,Corporation of London(November 2005).8

The Global Financial Centres Indexcompetitiveness of London and New York. The onlinequestionnaire poses a question about the most importantcompetitive factors for financial centres. In GFCI 2 regulationwas mentioned by more questionnaire respondents than anyother factor. Too onerous a regulatory environment directlyaffects the competitiveness of a financial centre;■ Market Access examines the levels of securitisation, volume andvalue of trading in equities and bonds, as well as the clusteringeffect of having many firms involved in the financial servicessector together in one centre;■ Infrastructure is mainly concerned with the cost and availabilityof buildings and office space, although reliable indicators to actas measures of other infrastructure factors such as transport arebeing sought;■ General Competitiveness compares the overallcompetitiveness levels of centres in terms of more generaleconomic factors such as price levels, economic sentiment andhow centres are perceived as places to live.9

The Global Financial Centres IndexTable 2The GFCIFinancial CentreRatingsGFCI 1 ratings figuresused in this table arerestated to reflectmethodologicalenhancements – referto Appendix AFinancial Centre GFCI 2 Rank Change in Ranksince GFCI 1GFCI 2 Rating Change in Ratingsince GFCI 1London 1 - 806 121New York 2 - 787 19Hong Kong 3 - 697 17Singapore 4 - 673 17Zurich 5 - 666 16Frankfurt 6 - 649 11Geneva 7 13 645 112Chicago 8 - 639 11Sydney 9 52 636 54Tokyo 10 51 625 59Paris 11 - 622 54Boston 12 12 621 111Toronto 13 51 613 11San Francisco 14 51 608 53Dublin 15 17 605 126Amsterdam 16 17 599 121Luxembourg 17 19 596 125Washington D.C. 18 12 589 55Melbourne 19 51 588 514Edinburgh 20 55 587 518Isle of Man 21 New 583 NewDubai 22 13 575 13Channel Islands 23 54 572 528Cayman Islands 24 58 564 540Hamilton (Bermuda) 25 58 562 541Stockholm 26 13 554 52Brussels 27 14 546 13Montreal 28 57 538 542Munich 29 New 535 NewShanghai 30 56 527 549Vancouver 31 54 525 533Milan 32 52 519 527Helsinki 33 51 518 519Madrid 34 56 516 541Vienna 35 - 515 53Osaka 36 New 502 NewOslo 37 54 500 529Copenhagen 38 54 488 537Beijing 39 53 482 531Rome 40 52 479 12Mumbai 41 52 470 15Seoul 42 11 464 115Johannesburg 43 New 463 NewBahrain 44 New 455 NewPrague 45 54 454 UnchangedWellington 46 59 447 561Qatar 47 New 440 NewWarsaw 48 58 438 522Sao Paulo 49 New 434 NewLisbon 50 58 422 53111

The Global Financial Centres IndexGFCI 2 shows that the ratings for 18 centres have risen fromGFCI 1, the ratings for 24 centres have fallen, one rating isunchanged and there are seven new centres within the GFCItop 50. There are some movements in the ratings which maypartly reflect methodological changes from GFCI 1:■ There has been a considerable rise in the number of centreassessments included in the model. GFCI 2 is based on 11,685centre assessments, nearly three times as many as theoriginal 3,992 assessments in GFCI 1;■ 23 instrumental factors have been updated (out of theoriginal 47); and■ Seven new financial centres have been added to the GFCImodel.In addition, the publication of GFCI 1 may have had an impacton the perceptions of financial service professionals, as itreceived widespread press coverage and was distributedextensively to the financial services community.What change in the ratings is significant? At this stage in theGFCI development, a movement of less than 25 points (2.5% ona scale of 1,000) is considered insignificant 5 . A movement ofbetween 25 and 50 points signifies that the competitiveness of afinancial centre needs to be watched. A movement of over 50points shows that a significant change in the competitiveness ofa financial centre may be occurring, although only Wellingtonfalls into this category here.The top six centres have not changed position. The centres thathave displayed sizeable movements in the ratings [the largestchanges here being for Wellington, Shanghai, Montreal,Hamilton (Bermuda), and the Cayman Islands] were identifiedin GFCI 1 as having either: a large variance in centreassessments (some respondents rate them highly and somerespondents rate them poorly), or a high sensitivity toinstrumental factors (their ratings react strongly to changes ininstrumental factors), or both. As such they were classified inGFCI 1 as either ‘volatile’ or ‘evolving’ centres.Wellington is a good example of a centre classed asvolatile – it fell by 61 points in the GFCI ratings, the largestchange. Wellington was classified in GFCI 1 as one of the mostvolatile centres and between GFCI 1 and GFCI 2 the averageof the centre assessments it received fell sharply. In theinstrumental factors that were updated between GFCI 1 andGFCI 2, Wellington’s performance in several of the mostinfluential factors (the Capital Access Index, the Index of5 It is likely that amovement of this sizewill become moresignificant when theGFCI model containsa greater number offinancial centreassessments and isless volatile.12

The Global Financial Centres IndexEconomic Freedom and Global Office Occupancy Costs),also declined.Shanghai is another good example of a centre identified in GFCI 1as one of the most volatile. Shanghai fell by 49 points in the ratings,due mainly to the questionnaire respondents giving it much lowerassessments on average than previously. When, however,respondents to the questionnaire were asked which centres theyfelt might become significantly more important in the next two tothree years, Shanghai was mentioned more frequently than anyother centre except Dubai.Chart 1 displays the movement in ratings of the top 10 GFCI 2centres since the publication of GFCI 1 in March 2007. As themodel was run quarterly, it is possible to include the figures fromJune 2007, giving a snapshot of the change in ratings over time.Chart 1The GFCITop 10 FinancialCentre RatingsMarch 2007 toSeptember 2007GFCI rating >820780LondonNew YorkLondonNew York740700Hong KongHong KongSingapore660SingaporeZurichZurich620SydneyFrankfurtChicagoTokyoGenevaSydneyGenevaChicagoFrankfurtTokyoMarch2007GFCI 1June2007September2007GFCI 2Date >13

The Global Financial Centres IndexThe GFCI reinforces the point made in earlier studies; London andNew York are the two leading financial centres. The two top-ratedcities, London (806) and New York (787), are 19 points apart on ascale of 1,000, 90 points higher than the next financial centre,Hong Kong. London and New York are distinct – they are globalfinancial centres.As discussed in GFCI 1, successful financial centres can fulfil one ormore of five different roles:■ Global financial centres incorporates only London and NewYork. Global financial centres have sufficient critical mass offinancial services institutions to act as an intermediary,connecting international, national and regional financialservices participants directly. An asset manager in Munich, forexample, can trade in financial instruments directly with abroker in New York without having to go via an intermediary in,for example, Frankfurt.■ International financial centres conduct a significant volume ofcross-border transactions – those transactions that involve atleast two locations in different jurisdictions. Hong Kong, forexample, is an international financial centre that is involved in asignificant proportion of Asian financial transactions.■ Niche financial centres are worldwide leaders in one sector;several centres score highly on the basis of being strong in oneparticular niche of financial services, such as Zurich for privatebanking or Hamilton (Bermuda) for reinsurance. Whilst theseniche financial centres will almost certainly never rival London orNew York as global financial centres, they are often as strong asLondon or New York within their own specialist area.■ National financial centres conduct a significant proportion of aparticular country’s financial business. Toronto, for example, isthe national financial centre of Canada. Where there aremultiple financial centres in a country, e.g. Canada, Australia,Germany or the USA, the situation is complicated. In Canada,for instance, the GFCI covers Toronto (ranked 13th), Montreal(ranked 28th) and Vancouver (ranked 31st). All three aresizeable financial centres, but Toronto is the national centre. Incountries where there are multiple financial centres, thenational centre is frequently tied with foreign exchangeconnections.■ Regional financial centres are defined here as centres thatconduct a large proportion of regional business within onecountry. Chicago, as well as being an international centre is alsoa regional centre for the mid-western USA.14

The Global Financial Centres IndexExamples of the roles that the top 10 financial centres can play areshown in Table 3.Table 3The DifferentRoles of FinancialCentresCentre Global International Niche National RegionalLondon ■ ■ ■ ■ ■New York ■ ■ ■ ■ ■Hong Kong ■ ■Singapore ■ ■Zurich ■ ■ ■Frankfurt ■ ■Geneva ■ ■Chicago ■ ■ ■Sydney ■ ■ ■Tokyo ■ ■In the past it has been assumed that international financial centresdeveloped because of strong domestic economies. Yet thedomestic markets affiliated with London and New York do notseem to be a dominant factor in the GFCI. The USA economy is atleast five times that of Britain’s, but London and New York are ratedsimilarly as financial centres.GFCI 2 shows that London is 19 points ahead of New York; this is not,however, a significant lead. Both London and New York arecompetitive in their own ways:■ London is undergoing the biggest building redevelopment sincethe post-war reconstruction as demand for office spaceincreases. Over 40% of the world’s foreign equities are traded inLondon, over 30% of world currency exchanges take place inLondon ($1.2 trillion a day of foreign exchange transactions aretraded in London – more than New York and Tokyo combined) 6 ,and London has taken a worldwide lead in over-the-counter(OTC) derivatives and metals trading. London is now attractinga greater proportion of foreign Initial Public Offerings (IPOs) thanNew York. London is also catching up with the USA in terms ofhedge funds and private equity – 21% of global hedge funds aremanaged out of London. There are other signs that London is apopular financial centre at the moment. It has been reported 7 ,for example, that Morgan Stanley is moving two of its most seniorpositions to London – their Global Head of Investment Bankingand the Global Head of Mergers & Acquisitions. London’sAlternative Investment Market (AIM) attracted more listings than6 International FinancialServices, London – Wall Street Journal –http://online.wsj.com15

The Global Financial Centres Indexall its global rivals combined last year, raising $29 billion inprimary and secondary listings.■ New York still towers above London in the size of funds undermanagement and volume of stock traded. 79 of the world’s 100largest public companies are listed on the New York StockExchange/Euronext. Whatever its international position, NewYork remains the centre of the world’s largest national economy.Financial centre competitiveness is not a ‘zero-sum’ game whereone centre’s gain is another’s loss. London and New York arecomplementary to each other and each thrives on the other’ssuccess. As one respondent says, in the GFCI questionnaire:“I can’t see London and New York ever beingovertaken – New York survived 9/11 and Sarbanes-Oxley; London thrives despite its transportinfrastructure – nowhere else can come close.”16

The Global Financial Centres Index4. Analysis of Financial CentresSection 4a, “Sensitivity”, sets out the statistical analysis of factorsused by the GFCI to assess the competitiveness of financialcentres; this subsection assesses the sensitivity of the GFCIratings to GFCI’s instrumental factors. It also examines thepotential vulnerability of the ratings to future changes inperception and circumstances. This form of analysis was set outin GFCI 1 and is updated here in GFCI 2. It is interesting to notethat those financial centres that were identified as volatile andevolving in GFCI 1 have tended to be the financial centreswhose rating has changed the most between GFCI 1 andGFCI 2.Section 4b, “Industry Sectors”, sets out some sub-analysis offinancial centres by industry sectors (banking, assetmanagement, insurance, professional services andgovernment & regulatory). This sub-analysis was suggested inGFCI 1, but there was insufficient data at that time to producemeaningful results. There is now sufficient data in some of thosecategories.Section 4c, “Connectivity” was one of the key themes toemerge from GFCI 1. This section sets out some furtherdiscussion and analysis on that theme.17

The Global Financial Centres Index4a. SensitivityGFCI 2 continues to show that a centre needs to be good atmost things to be a leading centre. Where the top centresappear uncompetitive in a particular factor this is often aproblem associated with success. For example, commercialand domestic property prices are high and rising in Londonbecause demand exceeds supply. If people did not want tolocate in London, property prices would fall. The top financialcentres, such as London and New York, have lower sensitivity toinstrumental factors and narrower variances in theirassessments than other cities; therefore their future GFCI ratingsare likely to be fairly stable.Other centres, such as Oslo, Sao Paulo and Wellington, thoughpoorly ranked today, have great sensitivity to instrumentalfactors and a wide variance in assessments, thus they maychange position significantly in the future.In order to examine how stable the rankings might be over time,the overall GFCI rating is contrasted with a centre’s sensitivity tochanges in instrumental factors. Each set of instrumental factorswas examined to see how it changed financial centre rankings.The variance of the scores from the five sets of instrumentalfactors (people, business environment, market access,infrastructure and general competitiveness) is termed‘sensitivity’. If a centre’s ranking changed markedly by usingonly one of the five groups of factors, it might be anticipatedthat it had a lot of potential to improve, or decline. If a centre’sranking remained stable despite using only one set of factors, itis more likely to remain near its present position. Chart 2contrasts GFCI ratings against sensitivity to instrumental factors.18

The Global Financial Centres IndexChart 2The Top 50FinancialCentresGFCI ratingversus Sensitivityto InstrumentalFactorsGFCI rating >• London• New YorkLeaders•Hong KongEvolving•Singapore•Zurich•Frankfurt•Geneva•Sydney•Chicago•Boston •Tokyo•Paris•Toronto•Dublin•San Francisco•Amsterdam•LuxembourgWashington D.C.••Edinburgh•Isle of Man•Melbourne•Channel Islands•Dubai•Hamilton •Cayman Islands•Stockholm•Brussels•Montreal•Munich•Shanghai•Helsinki•Madrid• Milan•Vancouver•Vienna•OsakaOslo••CopenhagenRome• •Beijing•MumbaiJohannesburg• •Seoul•Bahrain •Prague•Wellington•Qatar •Warsaw •Sao Paulo•LisbonMinorVolatileIncreasing Sensitivity to Instrumental Factors >This categorisation identifies four types of financial centre:■ Leaders: obviously London and New York, but also centreswith strong sub-sectors and strong domestic markets;■ Minor: centres that are not rated as highly, and are unlikelyto improve in the near term. It is interesting to note thatRome, Lisbon and Copenhagen fall into this category. Thesecentres have large domestic markets, but seem unlikely tochange their ratings soon;■ Volatile: centres that are not currently highly rated, butwhich might be able to move upwards rapidly if they couldaddress some factors. Interestingly, Sao Paulo, a centre thatmany of the questionnaire respondents rated as ‘up andcoming’ is in this category. It has a low rating at present buthas the potential to improve its competitive position rapidly;■ Evolving: centres that have high ratings, but which aresusceptible to change. It is interesting to see that Dubai andSan Francisco are already scoring as highly as some of theestablished centres and have the sensitivity to instrumentalfactors to move towards the group of ‘leaders’. Stockholm isnow on the border between volatile and evolving and it willbe interesting to track its progress. Tokyo is classified asevolving and is a centre that used to count itself as a leaderbut is still recovering from difficulties during the 1990s.19

The Global Financial Centres IndexAnother measure of how volatile a financial centre’s rankingmight be is the ‘spread’ or variance of the individualassessments given to each centre. This variance is plottedagainst the GFCI rating in Chart 3.Chart 3The Top 50FinancialCentresGFCI ratingversus Varianceof AssessmentsGFCI rating >•London•New York•Hong Kong•Frankfurt•Paris•Singapore•Zurich•Geneva•Chicago •Sydney•Tokyo•BostonToronto••Dublin•San FranciscoAmsterdam• Luxembourg• Melbourne••Edinburgh•Washington D.C.Isle of Man••Dubai•Channel Islands• •Cayman Islands•StockholmHamilton•Brussels•MontrealMunich•Milan•Shanghai •Vancouver•Madrid• •Helsinki•ViennaOsaka• •Oslo•Copenhagen•Rome •Beijing•MumbaiJohannesburg• •Seoul•Prague •Bahrain•Wellington•Warsaw•Qatar•Sao Paulo•LisbonIncreasing Variance of Assessments >Chart 3 shows that some centres tend to receive a far broaderrange of assessments than others. On the far right are centressuch as Munich, Channel Islands, Cayman Islands, Vancouverand Wellington indicating that their assessments had asignificantly higher variance (that is, some respondentsassessed them highly and other respondents assessed thempoorly). These centres have the most to gain or lose in futureGFCI questionnaire ratings. The centres on the far left of thechart had much more consistent assessments. For London andNew York, these assessments were consistently high. In the caseof centres such as Frankfurt, Paris, Zurich, Hong Kong,Singapore and Geneva, assessments were fairly consistent butlower than for London and New York.20

The Global Financial Centres IndexIn Chart 4 the sensitivity to instrumental factors (from Chart 2)and the variance of assessments (from Chart 3) are compared.Chart 4The Top 50FinancialCentresVariance ofAssessmentsversus Sensitivityto InstrumentalFactorsIncreasing Sensitivity to Instrumental Factors >•Oslo•Melbourne•Dubai•Sao Paulo•Stockholm•San Francisco•Warsaw•Osaka •Shanghai•WellingtonMunich••Chicago•ViennaQatar••Seoul •Montreal•Prague •Tokyo•Milan •Johannesburg•Cayman Islands•Madrid•Mumbai•Bahrain•Beijing •Washington D.C.•DublinLisbon• •Isle of Man •Boston•Helsinki•HamiltonToronto• •Sydney•Hong Kong•Copenhagen•Luxembourg•Channel Islands•RomeUnpredictable•VancouverNew York• •Paris•Frankfurt•LondonStableSingapore•Brussels••Zurich•Amsterdam•Geneva•EdinburghIncreasing Variance of Assessments >21

The Global Financial Centres IndexChart 4 shows three ‘bands’ of financial centres. The‘Unpredictable’ centres in the top right of the chart, such asOslo, Melbourne, Vancouver and Munich, have both a highsensitivity to changes in the instrumental factors and a highvariance of assessments. These centres have the highestpotential volatility in GFCI ratings.The ‘Stable’ centres in the bottom left of the chart, (includingLondon, New York, Paris, Frankfurt, Hong Kong, Singapore, Zurichand Geneva) have both a low sensitivity to changes in theinstrumental factors and a lower variance of assessments.These centres are likely to exhibit the lowest volatility in futureGFCI ratings.When this analysis was conducted for GFCI 1, the financialcentres in the ‘Unpredictable’ category then (those withmost potential to improve or decline) included Wellington,Shanghai, Warsaw, Budapest and Lisbon. These centres havemoved considerably in GFCI 2. The standard deviation of themovements in GFCI ratings for the ‘Unpredictable’ centres is21.1. This figure compares with a standard deviation of just7.4 for the ‘Stable’ centres in the bottom left. Of the centresmentioned, Wellington has declined by nine places,Shanghai by six places with Warsaw, Budapest and Lisbon allfalling by eight places. Dubai and Stockholm both rose bythree places in the GFCI.It is hard to predict what will happen to Shanghai in futureGFCI ratings. There is also considerable speculation as towhether Shanghai or any other centre will emerge as anAsian global financial centre. It may be that the financialservices activity generated by the growth of the main Asianeconomies is split between several international centres.Shanghai was the most commented-upon Asian centre inthe 2005 Corporation of London study 8 and GFCI 2 seems toindicate that Shanghai, Beijing and Tokyo are unlikely tobecome global centres in the immediate future. Hong Kongand Singapore are clear leaders in Asia at present.Another interesting group of financial centres are theoffshore centres. Several observers of GFCI 1 were slightlysurprised to see the Channel Islands, the Cayman Islandsand Hamilton (Bermuda) in the top 20 GFCI 1 ratings. In GFCI2, they have dropped slightly in the rankings, and the Isle ofMan, a new entrant in 21st place, is now the leading offshorecentre. Offshore centres are very important financial centresthat offer low (or no) taxes, political stability, ‘businessfriendly’regulation and, above all, discretion. The positions8 Z/Yen Limited, op. cit.,(November 2005).22

The Global Financial Centres Indexof the leading offshore centres are remarkably clustered withIsle of Man, Dubai, Channel Islands, Cayman Islands andHamilton (Bermuda) in 21st, 22nd, 23rd, 24th and 25thpositions. Some see offshore centres as a weak link in thefinancial services industry but there is no denying theirimportance. Offshore holdings are estimated at between$5 trillion and $7 trillion 9 – five times as much as twenty yearsago and representing up to 8% of total global wealth. TheCayman Islands alone are home to $1.4 trillion in assets.Financial services have served these centres well and GrossDomestic Product (GDP) per person in these islands is veryhigh. Hamilton (Bermuda) heads the global list of GDP perperson 10 . This list of GDP per person features five offshorecentres in the top 11 entries.9 The Economist, A Placein the Sun, A SpecialReport on OffshoreFinance, (24 February2007).10 Central IntelligenceAgency, WorldFactbook, (July 2007).23

The Global Financial Centres Index4b. Industry SectorsThe GFCI can now provide ‘industry sector indices’. Initiallythere are five industry sector indices: banking, assetmanagement, insurance, professional services and regulatoryand government bodies. These analyses are at an early stage.The indices below were created by building the GFCIstatistical model with only respondents from the relevantindustry sectors. As might be expected of the two globalfinancial centres, London and New York retain 1st and 2ndplaces respectively in all sector-specific indices.Chart 5The Top 10FinancialCentres –BankingRespondentsCity >LondonNew YorkSingaporeHong KongZurichSydneyFrankfurtChicagoTokyoGeneva500 550 600 650 700 750 800 850GFCI rating >The banking sector index shows Singapore just ahead of HongKong in 3rd place and Sydney jumping from 9th to 6th. Tokyomoves up a place at the expense of Geneva which is morestrongly associated with asset management. Bankers clearlydo not seem to rate niche centres as highly as otherrespondents.24

The Global Financial Centres IndexThe asset management sector-specific index shows Genevajumping from 7th place to 4th. Luxembourg rises to 10th placeand Zurich is still well placed at 7th position. The offshorecentres, which tend to be strong on asset management, allrise in this sector-specific index.Chart 6The Top 10FinancialCentres –AssetManagementRespondentsCity >LondonNew YorkHong KongGenevaSingaporeFrankfurtZurichSydneyDublinLuxembourg500 550 600 650 700 750 800 850GFCI rating >The insurance sector index (although based on a small sampleand hence, not statistically significant at this stage in thedevelopment of the GFCI), shows significant rises for Dublin(into 4th place), Hamilton (Bermuda) (up 72 points into 15thplace), Stockholm (into 13th place) and Oslo (into 16thplace). Hong Kong and Singapore both fall quite sharply to12th and 21st places respectively, as they are not recognisedas important centres for the insurance industry.25

The Global Financial Centres IndexChart 7The Top 10FinancialCentres –InsuranceRespondentsCity >LondonNew YorkZurichDublinFrankfurtChicagoTokyoGenevaSydneyAmsterdam500 550 600 650 700 750 800 850GFCI rating >The professional services sector index shows fewer largemovements in the ratings than the banking, assetmanagement and insurance sector-specific indices. Thisrelative lack of movement implies that all major financialcentres require and have good professional services support.Chart 8The Top 10FinancialCentres –ProfessionalServicesRespondentsCity >LondonNew YorkHong KongChicagoFrankfurtZurichSydneySingaporeBostonToronto500 550 600 650 700 750 800 850GFCI rating >26

The Global Financial Centres IndexMost of the North American centres gain places with Chicago upto 4th place, Boston to 9th and Toronto to 10th. Washington D.C.also climbed five places to 13th.The government and regulatory sector index, based on a verysmall sample, shows few large movements in the ratings and thetop five placings remain unchanged.Chart 9The Top 10FinancialCentres –Governmentand RegulatoryRespondentsCity >LondonNew YorkHong KongSingaporeZurichChicagoGenevaBostonFrankfurtSydney500 550 600 650 700 750 800 850GFCI rating >27

The Global Financial Centres Index4c. ConnectivityFinancial centres may be usefully viewed as the functional centresof connected financial networks. The connectivity of these centrescan be expressed and measured in terms of flows of information,people and traded services and the position of any individualcentre will reflect its role in linking firms and individuals to othercentres and into the functional global economy. Principalfinancial centres are better connected on the many dimensionsthat make for sustained agglomeration gains and indeed it is thebreadth and depth of global connectivity that makes London andNew York so important as emphasised by Sassen 11 . As noted earlier,London and New York, acting as global financial centres, oftenconnect regional participants directly, without using national orregional financial centres.The key areas of competitiveness examined in the GFCI – people,business environment, market access, infrastructure and generalcompetitiveness – all play a role in connectivity. For example:■ people improve their skills and marketability by makingconnections in strong financial centres;■ the business environment in well connected centres promotesrapid information flows encouraging the exchange of bestpractice, innovation and trust;■ the market access in major financial centres allows morefinancial institutions to be seen, compared and evaluatedquickly;■ infrastructure that facilitates communication such astelecommunications, and physical transport (both within thecentre and externally) are essential;■ the general competitiveness overall of financial centres isgreater where financial services businesses are well connected.Beaverstock et al 12 studied the connectivity of two Europeancentres (London and Frankfurt). The conclusions indicate that theglobal financial services ‘industry’ can be thought of as a networkof centres that are connected by flows of financial transactions,people, knowledge and innovation.Financial centres do not operate as separate ‘islands’ of financialactivity but as part of a network of financial centres. The genuinelyglobal financial centres of London and New York are extremelycomplex networks of connectivity. Global centres continuouslyconnect with international and national centres. They alsoconnect regional and niche participants directly with each other,without using international or national financial centres as hubs.Often centres are specialised and deal in a limited number oftypes of transaction.11 Sassen, Saskia. TheGlobal City. PrincetonUniversity Press, (1999).12 Beaverstock et al,Comparing Londonand Frankfurt as WorldCities: A RelationalStudy of ContemporaryUrban Change, Anglo-German Foundation forthe Study of IndustrialSociety, (August 2001).28

The Global Financial Centres IndexOne measure of connectivity is how familiar financial servicesprofessionals are with financial centres other than their home centre.Respondents to the GFCI questionnaire only assess financial centreswith which they are familiar. The number of times that each financialcentre is assessed is a basic measure of how well known that centre isand how well connected it is.For the purposes of Chart 10, the financial centres are sub-divided intothree major regions; Europe, North America and Asia-Pacific. For eachof these three regions individually, Chart 10 lists the top five mostfrequently assessed financial centres by respondents based in differentregions.Chart 10 shows that, for example, respondents based in Europe wereable to assess (and were therefore familiar with) London more than anyother European centre, New York more than any other North Americancentre and Hong Kong more than any other Asia-Pacific centre.Chart 10The Top Five MostFrequentlyAssessedFinancial Centresby Location ofRespondentAssessed ByRespondents Based inEuropeEuropean Centresmost FrequentlyAssessed1 – London2 – Paris3 – Frankfurt4 – Dublin5 – ZurichNorth AmericanCentres mostFrequently Assessed1 – New York2 – Chicago3 – Boston4 – Toronto5 – Washington D.C.Asia-Pacific Centresmost FrequentlyAssessed1 – Hong Kong2 – Singapore3 – Tokyo4 – Sydney5 – MumbaiAssessed ByRespondents Based inNorth America1 – London2 – Frankfurt3 – Paris4 – Zurich5 – Amsterdam1 – New York2 – Chicago3 – Washington D.C.4 – San Francisco5 – Toronto1 – Hong Kong2 – Singapore3 – Tokyo4 – Shanghai5 – SydneyAssessed ByRespondents Based inAsia-Pacific1 – London2 – Paris3 – Frankfurt4 – Zurich5 – Dublin1 – New York2 – Chicago3 – Boston4 – San Francisco5 – Vancouver1 – Singapore2 – Hong Kong3 – Shanghai4 – Tokyo5 – BeijingAssessed ByRespondents –Globally1 – London2 – Paris3 – Frankfurt4 – Zurich5 – Dublin1 – New York2 – Chicago3 – Boston4 – Washington D.C.5 – San Francisco1 – Hong Kong2 – Singapore3 – Tokyo4 – Sydney5 – Shanghai29

The Global Financial Centres IndexIt is interesting to note that respondents based in all three regionsrated London more frequently than any other European centreand New York more frequently than any other North Americancentre. See also Table 25 in Section 6, which sets out the totalnumber of assessments made for each financial centre.Travel to centres is another useful indicator of how well they areconnected. The flight arrivals instrumental factor shown in Table 4was used in GFCI 1 and has been updated here.Table 4Overall FlightArrivals –SelectedFinancialCentresFinancial CentreCities ranked by Numberof Flight ArrivalsParis 1London 3Singapore 4New York 5Frankfurt 8Tokyo 9Hong Kong 12Toronto 14Sao Paulo 16Amsterdam 17Johannesburg 19Seoul 21Source: World Tourist Organisation ( should be noted that the rankings in Table 4 are based on flightarrivals into different cities and a number of these are touristarrivals; for this reason this factor is used as a ‘people’ instrumentalfactor rather than a ‘market access’ factor. This is perhaps whyParis is rated above London and New York. Two of the newentrants into the GFCI top 50, Johannesburg and Sao Paulo, areboth ‘well connected’ by these measures.30

The Global Financial Centres IndexMastercard Worldwide published some intriguing research 13 intoconnectivity earlier in 2007. Mastercard’s research has been builtinto the GFCI model as a new Market Access instrumental factorfor GFCI 2. The research is based on inter-city connectivity of the100 richest global corporate services firms including thosespecialising in law, advertising, management consulting,accounting, and insurance. A measure of connectivity is derivedfrom the office networks of these firms and is shown in Table 5.Table 5Relative GlobalNetworkConnectivity –SelectedFinancialCentresFinancial Centre Connectivity Ranking Relative connectivity(out of 24 cities) (London = 1.000)London 1 1.000New York 2 0.978Tokyo 3 0.724Milan 4 0.609Los Angeles 5 0.600Sao Paulo 6 0.557Mumbai 10 0.473Shanghai 11 0.449Seoul 12 0.442Moscow 13 0.431Johannesburg 14 0.426Dubai 21 0.342Source: Mastercard WorldwideThe relative connectivity figures in Table 5 mirror the GFCI ratings –London and New York are in a league of their own with far greaterconnectivity than any other centre.13 Mastercard Worldwide,The Dynamics of GlobalCities and GlobalCommerce, (Quarter 22007).31

The Global Financial Centres Index5. Instrumental FactorsThis section examines the externally sourced rankings and ratings,grouped by the five key areas of financial centre competitivenessidentified in previous research (see Section 2 above). Those fiveareas are People, Business Environment, Market Access,Infrastructure and General Competitiveness. The GFCI factorassessment model was run with one set of factors at a time and theresults compared to identify which factors influence whichcentres.Instrumental factors are used as proxies for something that is notdirectly measurable. 33 of the 54 instrumental factors used in theGFCI are based on country ratings rather than financial centreratings. There are often regional variations within countries whichare not accounted for by the country ratings. Overall, however,and in most of the groupings analysed below, there are sufficientfinancial centre ratings to provide an accurate reflection. Detailsof all the instrumental factors used in the GFCI are shown inAppendix C.32

The Global Financial Centres Index5a. People FactorsThe people related instrumental factors (people factors) used inthe GFCI are:■ Executive MBA Global Rankings, Financial Times■ European Human Capital Index, Lisbon Council■ Human Development Index, UNDP■ Labour Productivity, OECD■ Education Expenditure, OECD■ Quality of Living Survey, Mercer HR 1■ Happiness Scores, NationMaster■ World’s Top Tourism Destination, World Tourism Organisation 1■ Average Days with Precipitation per Year, Sperling’s Best Places b1 – these indices have been updated since GFCI 1b – this index has been added since GFCI 1Chart 11 shows the top ten centres by GFCI rating when only usingthe people factors in the prediction model.Chart 11The Top 10FinancialCentres usingOnly PeopleFactorsCity >LondonNew YorkHong KongZurichSingaporeSan FranciscoChicagoFrankfurtGenevaToronto500 550 600 650 700 750 800 850GFCI rating >33

The Global Financial Centres IndexLondon and New York occupy 1st and 2nd positions respectivelyon people factors. It is no coincidence that the two global centresare consistently assessed as having the best people. Hong Kongremains in 3rd place. San Francisco moved up nine places to 6thand Chicago moved up one place to 7th. The North Americancentres generally fare well in the people factors. As well as SanFrancisco and Chicago, the Canadian centres Toronto, Montrealand Vancouver all move up the rankings when consideringpeople factors alone.These Canadian centres score well in the Quality of Living Survey,NationMaster’s Happiness Scores and the Human DevelopmentIndex. Other centres that do well on people factors are Oslo andWellington, centres known for their quality of life. Frankfurt andSydney are both lower in this sectoral-index than in the GFCI,although they are still above most other regional and nationalcentres.Earlier research 14 ranked the availability of skilled personnel andthe flexibility of the labour market as the most important factors inthe competitiveness of a financial centre. Financial servicesprofessionals are often flexible about where they work and factorssuch as the quality of life, culture and language seem to play anincreasingly significant part in their location decisions. One quotefrom the online questionnaire sums this up well:“ 'Softer' people factors, such as culture, openness,diversity and quality of life often influencedecisions to open operations in new locations.”Mercer HR assesses 215 cities in its Quality of Living Survey eachyear (39 criteria are used and New York is used as a benchmarkwith a score of 100). These figures have been updated sinceGFCI 1 and the latest scores for selected financial centres ofinterest are shown in Table 6 alongside the scores from whenGFCI 1 was created.14 Z/Yen Limited, op. cit.,(November 2005).34

The Global Financial Centres IndexTable 6Quality of LivingSurvey – SelectedScoresFinancial Centre Quality of Living Quality of LivingIndex GFCI 2 Index GFCI 1Zurich 108.1 108.2Geneva 108.0 108.1Vancouver 107.7 107.7Vienna 107.7 107.5Frankfurt 107.1 107.0Sydney 106.5 106.5Wellington 105.8 105.8Amsterdam 105.7 105.7Brussels 105.6 105.6Toronto 105.4 105.4Melbourne 105.0 105.0Luxembourg 104.8 104.8Stockholm 104.7 104.7Montreal 104.3 104.3Oslo 103.5 102.8Dublin 103.3 103.8San Francisco 103.2 103.2Helsinki 103.1 103.1Paris 102.7 102.7Singapore 102.5 102.5Tokyo 102.3 102.3Boston 101.9 101.9London 101.2 101.2Madrid 100.5 100.1Washington D.C. 100.4 100.4Chicago 100.4 100.4New York 100.0 100.0Source: www.mercerhr.comThe scores of the Swiss centres at the top of the rankings bothfell very slightly in the new Quality of Living Survey. Londonappears within the top quartile of the 215 cities covered, justabove New York.Another factor which affects the quality of living in a financialcentre is the weather. Several observers suggested that anindicator of weather was missing from GFCI 1. If all other factors areequal, people are likely to choose to live and do business in a morepleasant climate. A factor added to the GFCI model wasprecipitation. Some selected measurements are shown in Table 7.35

The Global Financial Centres IndexTable 7Average dayswith Precipitation– Selected ScoresFinancial CentreAverage days withPrecipitation per annumCayman Islands 59Johannesburg 74Beijing 99Madrid 104San Francisco 118Rome 127Melbourne 129Sydney 132Seoul 135Milan 137Lisbon 147Zurich 154Shanghai 160New York 165Washington D.C. 168Boston 187Wellington 188Chicago 191Paris 193Vancouver 193Geneva 199Toronto 206Montreal 213Singapore 224Luxembourg 229Frankfurt 234Munich 234Brussels 236Copenhagen 238Tokyo 239Budapest 242London 242Channel Islands 247Stockholm 248Amsterdam 249Dublin 271Osaka 274Moscow 275Edinburgh 279Isle of Man 283Hong Kong 341Source: www.bestplaces.net36

The Global Financial Centres IndexA further instrumental factor used in building the GFCI is theEuropean Human Capital Index which seeks to measure the abilityof countries to develop their human capital through efficientdevelopment, deployment and utilisation. The UK is in 3rd place inthis index, behind Sweden and Denmark, with France in 8th placeand Germany in 10th. The UK’s placing supports the widely heldperception that the availability of skilled personnel is better in theUK than in most other European countries.PricewaterhouseCoopers (PwC) and the Partnership for New YorkCity have recently published a relevant report 15 looking at differentmeasurements of competitiveness for 11 cities. Although thesefactors were not included in GFCI 2, they are worthy of discussionin this sub-section and shall be considered for inclusion in futureversions of the GFCI. One ranking created in this report is called‘Intellectual Capital’ and incorporates the number of topuniversities, the percentage of the population with highereducation qualifications and even the number of Nobel Prizewinners. The results are shown in Table 8.Table 8IntellectualCapitalFinancial Centre Rank Intellectual Capital ScoreLondon 1 23Paris 2 22Tokyo 3 19New York 4 18Toronto 5 17Atlanta 6 15Los Angeles 7 12Chicago 8 11Frankfurt 9 9Singapore 10 8Shanghai 11 4Source: PricewaterhouseCoopers & the Partnership for New York CityLondon comes out on top in this particular measure, with New Yorkin 4th place. Another ranking created by PwC was entitled‘Technology IQ and Innovation’ and included the percentage ofinternet users with broadband connections, employment in hightechnologyindustries, the percentage of the population who areself-employed and the number of patents registered per onemillion population. The results are shown in Table 9.15 PricewaterhouseCoopers,Cities of Opportunity,PricewaterhouseCoopers& the Partnership for NewYork City, (March 2007).37

The Global Financial Centres IndexTable 9Technology IQand InnovationFinancial Centre Rank Technology IQ andInnovation ScoreTokyo 1 35London 2 30Paris 3 29Atlanta 4 28Frankfurt 5 24New York 6 24Toronto 7 23Los Angeles 8 22Chicago 9 17Shanghai 10 17Singapore 11 15Source: PricewaterhouseCoopers & the Partnership for New York CityOn this measure, Tokyo leads London, with New York in 6th place.By these PwC measures, London is still clearly a leader ininnovation although in other studies, New York comes out morestrongly. To be a successful global financial centre, a centreclearly needs to have a business environment that supports andencourages innovation.38

The Global Financial Centres Index5b. Business Environment FactorsThe business environment related instrumental factors (businessenvironment factors) used in the GFCI are:■ Administrative and Economic Regulation, OECD■ Business Environment, Economist Intelligence Unit■ Total Tax Rates, World Bank/PwC■ Corporate Tax Rates, OECD■ Employee Effective Tax Rates, PwC 1■ Wage Comparison Index, UBS■ Personal Tax Rates, OECD■ Total Tax Receipts (As a Percentage of GDP), OECD 1■ Ease of Doing Business Index, World Bank 1■ Opacity Index, Kurtzman Group■ Corruption Perceptions Index, Transparency International 1■ Index of Economic Freedom, Heritage Foundation 1■ Economic Freedom of the World Index, Fraser Institute■ Financial Markets Index, Maplecroft■ Political Risk Score, Exclusive Analysis 11 – these indices have been updated since GFCI 1Chart 12 shows the top ten centres by GFCI ranking when onlyusing the business environment factors in the prediction model.Chart 12The Top 10Financial Centresusing onlyBusinessEnvironmentFactorsCity >LondonNew YorkHong KongChicagoSingaporeZurichFrankfurtSydneyGenevaDublin500 550 600 650 700 750 800 850GFCI rating >39

The Global Financial Centres IndexAgain, London and New York are placed 1st and 2nd respectively.Previous research has indicated that the regulatory environment,a strong component of what is referred to here as the ‘businessenvironment’, is one of the most important competitivenessfactors for a financial centre. London and New York are seen ashaving generally good regulatory environments, although manypeople are critical of the USA because of what is seen as a ‘heavyhanded’approach to regulating financial services. One quotefrom a respondent to the online questionnaire mentions tworeasons why New York is less competitive than it used to be:“New York is positioning itself out of the globalmarket because of Sarbanes-Oxley and theincreased risk of litigation.”A London based investment banker who responded to the onlinequestionnaire is concerned that European legislation could harmLondon:“If the UK Government raises taxes any further orimposes further European regulatory burdens it willbe detrimental to London's growth.”There are two sides to the regulatory environment, namely thequantity and rigour of the regulations themselves, and the way inwhich firms are expected to comply. Many financial servicesprofessionals perceive that regulators, such as the SecuritiesExchange Commission (SEC), adopt a prescriptive ‘rules based’approach whilst the Financial Services Authority (FSA) has a lessprescriptive ‘principles based’ approach. In the UK there areapproximately 3,400 new regulations a year 16 , from 674 recognisedregulatory bodies. The Better Regulation Task Force estimated thecost of these regulations as 10% to 12% of GDP, that is, over £100billion in the UK. Regulation is now so substantial and of such criticalimportance to an economy that getting it right is paramount andthe effects of getting it wrong can be catastrophic for an industry.The UK Government recognises the importance of gettingregulation right and has formed the Department for Business,Enterprise and Regulatory Reform (responsibility for regulationformerly fell within the Department of Trade and Industry). This newdepartment is expected to ensure that the UK regulatoryenvironment is simplified and that the regulatory demands of theEuropean Union are handled appropriately.There has been much discussion about the effect that theSarbanes-Oxley legislation has had on the USA financial centres. Itis claimed that London has benefited from Sarbanes-Oxley withinternational firms preferring to list in London rather than in the USA.16 A Persaud, RegulatoryCapture, GreshamCollege, (June 2005)and M. Mainelli,Standards Markets? TheFree Market ResponseTo Regulation, GreshamCollege, (October2006).40

The Global Financial Centres IndexIt is probable that Sarbanes-Oxley is not the only source ofcompetitive disadvantage for New York at present. Severalrespondents to the GFCI questionnaire made comments aboutthe litigious business practices in the USA and the high brokeragecharges in New York. The implementation of parts of Sarbanes-Oxley has been eased and this may help New York to remaincompetitive.Of the other leading centres in the GFCI, three centres have shownsignificant changes when running the GFCI on businessenvironment factors, namely Chicago (up to 4th place), Sydney(up to 8th place) and Dublin (up to 10th place). These three citiesare all perceived to have good regulatory environments. TheOECD produces an index of administrative and economicregulation and a selection of the scores are shown in Table 10 – alow score indicates more effective regulation.Table 10Administrativeand EconomicRegulationCountry Administrative Regulation Economic RegulationUK 0.80 1.40Canada 0.80 1.40Australia 1.00 0.90Norway 1.00 2.30USA 1.10 1.30Denmark 1.10 1.40Ireland 1.10 1.50Sweden 1.10 1.70Finland 1.30 1.90New Zealand 1.40 1.10Portugal 1.50 2.20Luxembourg 1.60 1.50France 1.60 2.30Italy 1.60 2.60Japan 1.70 1.40Austria 1.90 1.50Netherlands 1.90 1.60Germany 1.90 1.80Belgium 1.90 1.80Greece 1.90 2.20Spain 2.00 2.10Switzerland 2.20 2.00Czech Republic 2.40 2.00Poland 2.90 2.70Source: www.oecd.org41

The Global Financial Centres IndexThe UK and the USA fare well in both of the indices in Table 10.Whilst Hong Kong and Singapore do not feature in this index, anumber of questionnaire respondents perceive that both HongKong and Singapore have strong regulatory environments.The GFCI model includes several instrumental factors which givean indication of how ‘fair and just’ a business environment is andhow easy it is for businesses to operate. The Index of EconomicFreedom, published by the Heritage Foundation, measures tenfactors of economic freedom for over 160 countries. A smallselection of country rankings is shown in Table 11 together withrankings from the Corruption Perceptions Index published byTransparency International. Both these indices have beenupdated since GFCI 1.Table 11Index ofEconomicFreedomand theCorruptionPerceptionsIndex –SelectedScoresCountryIndex ofEconomicFreedom GFCI 2Index ofEconomicFreedom GFCI 1CorruptionPerceptionsGFCI 2CorruptionPerceptionsGFCI 1Singapore 85.7 88.4 9.4 9.4Hong Kong 82.7 90.9 8.3 8.3USA 82.0 82.4 7.3 7.6UK 81.6 82.2 8.6 8.6New Zealand 81.6 84.0 9.6 9.6Luxembourg 79.3 80.3 8.6 8.5Switzerland 79.1 80.0 9.1 9.1Canada 78.7 78.7 8.5 8.4Denmark 77.6 76.2 9.5 9.5Netherlands 77.1 77.0 8.7 8.6Japan 73.6 74.5 7.6 7.3Germany 73.5 74.0 8.2 8.2Sweden 72.6 74.0 9.2 9.2Austria 71.3 71.4 8.6 8.7Norway 70.1 70.8 8.8 8.9France 66.1 65.2 7.4 7.5China 54.0 55.4 3.3 3.2Russia 54.0 54.3 2.5 2.4Source: and www.transparency.org42

The Global Financial Centres IndexThe Index of Economic Freedom demonstrates one of the reasonswhy many financial services professionals believe that if there is tobe a third global financial centre in Asia, it is likely not to be on theChinese mainland but in Hong Kong or Singapore. The UK performsstrongly in these two indices.Another facet of the regulatory environment is the tax regime –both for corporate taxes and personal taxes. A number of therespondents to the GFCI questionnaire believe that the UK isbeginning to lose competitive advantage in this area, forexample:“London is hampered by high and complextaxation.”“Tax rates and the attitude of tax authorities is highon the agenda for a number of businesses inLondon at the moment.”Five taxation indices were incorporated into the GFCI model asinstrumental factors. The first index was an adaptation of DoingBusiness, a survey produced by PricewaterhouseCoopers (PwC)for the World Bank. PwC adapted their model to reflect a financialservices firm more accurately than the manufacturing companynorm used in the calculations for the World Bank. The model is notjust the ‘headline corporation tax’ rate (although this is also builtinto the GFCI model) but a combination of corporate income tax,social security or other labour taxes and also property andturnover taxes. The rates (rounded to the nearest percentagepoint) that apply in some countries are shown in Table 12 togetherwith the Effective Employee Tax Rate – again using PwCmethodology and adapting their model to represent, moreclosely, a financial services employee.43

The Global Financial Centres IndexTable 12Corporate &EffectiveEmployee TaxRates –SelectedFinancialCentresFinancial CentreTotal Corporate Tax Effective Employee Change in EffectiveRate 2006Tax Rate 2007 Employee Tax Ratesince GFCI 1Zurich 25% 23% +1%Geneva 25% 29% +1%Dublin 26% 33% -4%Singapore 29% 15% -Hong Kong 29% 15% -1%London 35% 34% -Warsaw 38% 41% -Montreal 43% 39% -New York 46% 33% +2%Oslo 46% 38% -Amsterdam 48% 45% +1%Prague 49% 39% -Sydney 52% 36% -Vienna 56% 40% -Stockholm 57% 45% -2%Frankfurt 57% 37% -Budapest 59% 48% +4%Paris 68% 33% +1%Milan 76% 48% +3%Shanghai 77% 27% -3%Mumbai 81% 32% -Source: PricewaterhouseCoopersBased on the Total Corporate Tax Rates, London is placedsignificantly ahead of New York, although behind Hong Kong andSingapore which both have favourable personal tax rates. In GFCI1, corporate tax rates in the UK were highlighted as an area ofconcern. Since GFCI 1, UK corporation tax has been reformed andthe headline rate has been reduced by 2%.The Institute of Directors has just published a report 17 that underlinesthe current issues for the UK. The two most frequently mentionedconcerns are the general burden of taxation and regulation.The World Bank publishes a measure of regulation and corruptionunder the title Governance Matters 18 , which lists countries inpercentile rankings. Although this measure was not included inGFCI 2, it is worthy of discussion in this sub-section and shall beconsidered for inclusion in future GFCIs. Table 13 shows the latest ofthese rankings.17 The Institute ofDirectors, The SME GlassCeiling, GrowthObstacles in 2007,(August 2007).18 World Bank,Governance Matters2007, WorldwideGovernance Indicators,(2007).44

The Global Financial Centres IndexTable 13RegulatoryQuality & Controlof Corruption –SelectedPercentileRankingsCountry Regulatory Quality Control of CorruptionHong Kong 100.0 92.7Singapore 99.5 98.1Denmark 99.0 99.0Luxembourg 98.5 95.6UK 98.0 93.7Ireland 97.6 92.2Netherlands 95.6 96.1USA 93.7 89.3Switzerland 93.2 97.1Sweden 92.7 97.6Germany 91.2 93.2Norway 90.7 96.6Cayman Islands 88.3 85.4Belgium 87.8 91.3France 82.9 91.7Italy 74.1 64.1South Korea 70.7 64.6South Africa 70.2 70.9Brazil 54.1 47.1Russia 33.7 24.3Source: The World BankThe percentile rankings of regulatory quality underscore one of thereasons why Hong Kong and Singapore rank highly in the GFCI.Switzerland, the Scandinavian countries and the Cayman Islandsalso perform well in these rankings. Table 13 also shows percentilerankings on the control of corruption. The leading centres in theGFCI are within jurisdictions that control corruption well.45

The Global Financial Centres Index5c. Market Access FactorsThe market access related instrumental factors (market accessfactors) used in the GFCI are:■ Capital Access Index, Milken Institute 1■ Securitisation, IFSL 1■ Five measures from the World Federation of Exchanges:Value of Share Trading, Volume of Share Trading, Volumeof Trading Investment Funds, Value of Bond Trading, Volume ofBond Trading 1■ Global Banking Service Centres, GaWC Research■ Global Accountancy Service Centres, GaWC Research■ Global Legal Service Centres, GaWC■ The International Finance Index, Dariusz Wojcik b■ The International Finance Location Quotient, Dariusz Wojcik b■ The International Finance Diversity Index, Dariusz Wojcik b■ Relative Global Network Connectivity, Mastercard b1 – these indices have been updated since GFCI 1b – this index has been added since GFCI 1Chart 13The Top 10FinancialCentres usingonlyMarket AccessFactorsCity >LondonNew YorkHong KongSingaporeZurichFrankfurtParisChicagoGenevaTokyo500 550 600 650 700 750 800 850GFCI rating >46

The Global Financial Centres IndexChart 13 shows the top ten centres by GFCI ranking when onlyusing the market access factors in the prediction model.Of the major financial centres, the top six do not change positions.This is to be expected – major financial centres have good accessto financial markets. Paris climbs into 7th at the expense ofGeneva. This movement is due to the fact that Geneva is more ofa niche financial centre with strengths in private banking and assetmanagement but is not as strong in investment banking and theother major sectors that require access to financial markets.One of the reasons that London is such a strong financial centre ismarket access – not just direct access to the financial markets butaccess to customers and suppliers of professional services. Tworepresentative quotes from the online questionnaire indicate justhow important access to financial markets, clients and suppliers is:“London is clearly becoming the global nucleus ofmarket liquidity and that means brokers andsupport services are now based there.”“All the key investment banks and brokers havesubstantial presence in London, making doingbusiness here much more convenient.”New York is similar to London in this respect – it has a wellestablished cluster of professional services organisations whichsupport the financial sector.In the GFCI model the Capital Access Index compiled by theMilken Institute is used as an instrumental factor. This index rankscountries on more than 50 measures, including the strength of theirbanking systems and the diversity and efficiency of financialmarkets to generate economic conditions. The Milken Institute hasupdated the index since GFCI 1 and Table 14 shows the newvalues of the Capital Access Index for selected countries.47

The Global Financial Centres IndexTable 14The CapitalAccess Index –SelectedCountries(higher figuresindicatebetter accessto capital)Country Capital Access Capital AccessIndex GFCI 2 Index GFCI 1Hong Kong 8.07 7.84Singapore 8.00 7.77UK 7.79 8.01Canada 7.61 7.42USA 7.59 7.75Australia 7.55 7.60Switzerland 7.52 7.39Netherlands 7.50 7.20Ireland 7.46 7.42Sweden 7.35 7.62Norway 7.16 7.47Finland 7.09 7.46Denmark 6.99 7.61Germany 6.92 6.93New Zealand 6.88 7.04Japan 6.88 6.76France 6.44 6.62Spain 6.42 6.80Source: www.milkeninstitute.orgWhen GFCI 1 was compiled, the UK held 1st place in the Capital AccessIndex, with a healthy lead over Hong Kong and Singapore and the USAfollowing closely behind. The UK is now in 3rd place with the USA in 5th.Hong Kong and Singapore are 1st and 2nd and interestingly Canada isnow 4th. Switzerland is in 7th place which supports the rankings of Zurichand Geneva in the GFCI.Other trading statistics were built into the GFCI model as instrumentalfactors for market access. These statistics were taken from the WorldFederation of Exchange’s monthly Focus report. The latest figures (June2007) for the value and volume of share trading, the volume of tradinginvestment funds, as well as the value and volume of bond trading,were entered into the GFCI model. New York is the leading centre interms of trading shares and investment funds. London is in 2nd secondposition and Tokyo in 3rd place in terms of the value of share trading.Tokyo’s high ranking is due to the large volume of domestic issuancewhereas New York and London have a large component ofinternational issuance. The Focus report also shows that Shanghai rateshighly in terms of investment fund trading and is now just ahead of NewYork and well ahead of any of the other financial centres.A number of respondents from the questionnaire believe that thepresence of a stock exchange in a financial centre is a necessaryelement of market access. There is certainly plenty of speculationregarding the continued importance of financial exchanges.Exchanges are a booming business at the moment. They have shed48

The Global Financial Centres Indextheir mutual status to become for-profit, publicly traded entities andare the subject of a great deal of merger and acquisition activity. InApril 2007 the NYSE completed its merger with Euronext, itselfformed from the union of the Paris, Amsterdam, Brussels and Lisbonbourses. The London Stock Exchange (LSE) recently announcedthat it is buying its Italian equivalent, Milan's Borsa Italiana. Similarly,Borse Dubai is bidding to take a stake of at least 25% in Swedishmarket operator OMX.Increasingly however, brokers are operating without the bigexchanges relying on ‘internalisation’. There are now ‘dark pools’ ofliquidity, in which banks and institutional investors anonymouslytrade large quantities of shares. An estimated 10-15% 20 of all sharetrading is now done outside exchanges.New trading venues are being planned all the time. One of theseplanned venues is Project Turquoise, a pan-European tradingplatform being set up by a group of large banks that control morethan 50% of the order flow in European equities. Turquoise hopes tocompete by adopting the old mutual model ditched by mosttraditional exchanges.Another instrumental factor for market access is the size of thefinancial services sector. The PwC report 21 referred to earlier providesa measure of ‘Financial Clout’ for the 11 centres they studied. TheFinancial Clout score is based on the number of Fortune Global 500companies with headquarters in each centre, the percentage ofindividuals employed in financial and business services, thedomestic market capitalisation of stock exchanges and the value ofprivate equity (including venture capital) deals. The values areshown in Table 15.20 The Economist, Briefingon Financial Exchanges:Buy, Buy, Buy, (May 2007).21 PricewaterhouseCoopers,op. cit, (March 2007).Table 15Financial Clout Financial Centre Rank Financial Clout ScoreNew York 1 39London 2 35Paris 3 32Tokyo 4 30Frankfurt 5 22Toronto 6 20Chicago 7 18Atlanta 8 14Los Angeles 8 14Singapore 10 13Shanghai 11 7Source: PricewaterhouseCoopers49

The Global Financial Centres IndexDariusz Wojcik 21 has developed the International Finance Index (IFI)which represents a country’s weighted share of internationalfinance. International financial services are classified in four majorsections: external bank loans and deposits, international debtsecurities, cross listed stocks and foreign exchange trading(including OTC foreign exchange trading and interest ratederivatives).The UK and the USA together account for more than 50% of thepossible IFI points, which means that the majority of theinternational financial transactions are conducted in the UK or theUSA. Germany and France with IFI values of 7.10 and 4.62 are 3rdand 4th. Places five, six and seven are taken by Hong Kong, theNetherlands and the Cayman Islands, with very similar IFI values.Two offshoots of the IFI, the International Finance LocationQuotient (IFLQ) and the International Finance Diversity Index (IFDI),offer further insight into the development and structure ofinternational finance. The IFLQ measures the specialisation of acountry’s economy in international financial services, relating acountry’s share in international financial services to its share in GDP.This quotient shows, unsurprisingly, that the Cayman Islands havethe highest value. Luxembourg, Hong Kong, Singapore andBermuda come next and then follows the UK with a score of 5.56.This result does signify just how important financial services are tothe UK economy, a fact supported by other City of Londonresearch 22 .The IFDI identifies how diverse a country’s financial sector is – if acountry’s entire international financial sector is based on only oneof the four segments of the financial sector, the IFDI takes the valueof zero, if it is spread equally across all four segments, the IFDI takesthe value of 1. As one might expect, London and New York havevery diversified financial services industries as do France andGermany. Bermuda and the Cayman Islands are both specialisedcentres and, as such, have the lowest values in the IFDI.The values of the IFI, IFLQ and IFDI are shown in Table 16.21 Dariusz Wojcik, TheInternational FinanceIndex and itsDerivatives, OxfordUniversity Centre for theEnvironment, (July2007).22 Oxford EconomicForecasting, London’sPlace in the UKEconomy, 2006-07,City of London,(November 2006).50

The Global Financial Centres IndexTable 16The InternationalFinance Indexand DerivativeIndicesCountry IFI IFLQ IFDIUK 30.25 5.56 0.93USA 21.30 0.70 0.97Germany 7.10 1.07 0.93France 4.62 0.90 0.90Hong Kong 3.59 8.27 0.77Netherlands 3.39 2.23 0.77Cayman Islands 3.35 731.13 0.64Japan 2.82 0.28 0.69Switzerland 2.60 3.01 0.81Singapore 2.19 7.23 0.84Italy 2.17 0.51 0.89Spain 1.90 0.68 0.63Ireland 1.82 3.57 0.67Luxembourg 1.51 16.28 0.75Australia 1.50 0.87 0.82Belgium 1.32 1.47 0.73Canada 1.29 0.44 0.89Sweden 0.97 1.10 0.99Austria 0.92 1.24 0.85Denmark 0.72 1.14 0.80Norway 0.50 0.65 0.96China 0.40 0.07 0.20South Africa 0.37 0.63 0.80South Korea 0.34 0.17 0.86Greece 0.33 0.47 0.74Russia 0.32 0.14 0.82Finland 0.26 0.54 0.71Portugal 0.24 0.55 0.76Mexico 0.21 0.11 0.80Brazil 0.16 0.07 0.68Poland 0.15 0.19 0.92Turkey 0.12 0.14 0.83India 0.11 0.05 0.86Bermuda 0.06 5.80 0.21Source: Dariusz Wojcik51

The Global Financial Centres Index5d. Infrastructure FactorsThe infrastructure related instrumental factors (infrastructurefactors) used in the GFCI are:■ Global Office Occupancy Costs, DTZ 1■ Office Space Across The World, Cushman &Wakefield, Healey & Baker■ Competitive Alternatives Survey, KPMG■ Offices With Air Conditioning, Gardiner & Theobald 1■ European Cities Monitor, Cushman & Wakefield, Healey & Baker■ Global Property Index, IPD 1■ Direct Real Estate Transaction Volumes, Jones Lang LaSalle b■ Real Estate Transparency Index, Jones Lang LaSalle b1 – these indices have been updated since GFCI 1b – this index has been added since GFCI 1Chart 14 shows the top ten centres by GFCI ranking when onlyusing the infrastructure factors in the prediction model.Chart 14The Top 10FinancialCentres usingonlyInfrastructureFactorsCity >LondonNew YorkHong KongSingaporeZurichFrankfurtTokyoGenevaSydneyParis500 550 600 650 700 750 800 850GFCI rating >52

The Global Financial Centres IndexUsing only infrastructure factors, the top six centres all remain in thesame positions. As with GFCI 1, Tokyo has climbed the rankingshere and is in 7th place. The top four centres all share relativelyhigh infrastructure costs and yet are still ranked highly.Several measures of office and occupancy costs have been usedas instrumental factors in the GFCI. DTZ’s Global OfficeOccupancy Costs looks at the straightforward rental costs ofoccupying space. A selection of costs is given in Table 17 togetherwith the movement in rankings since GFCI 1.Table 17OfficeOccupancyCosts – SelectedFinancial CentresFinancial Centre Global Office Occupancy Movement in RankingsCosts (US$ per workstation Since GFCI 1per annum)London 20,475 1Hong Kong 19,730 1Paris 17,700 5Dublin 15,810 1New York 14,355 5Frankfurt 13,410 5Seoul 12,470 1Tokyo 11,125 5Toronto 10,340 5Stockholm 10,250 5Milan 9,640 5Sydney 8,620 5Madrid 8,530 1Rome 8,350 5Athens 7,910 5Singapore 7,860 1Shanghai 7,120 1Vienna 7,070 5Beijing 5,830 5Melbourne 5,220 5Prague 4,400 5Budapest 4,220 5Source: www.dtz.comLondon and Hong Kong have moved up in the rankings to 1st and2nd respectively. Dublin has also risen, to 4th. Paris has now fallento 3rd place and New York is in 5th. Tokyo is down to 8th place.Singapore and Shanghai have both risen in the cost rankings andare now in 16th and 17th places respectively.53

The Global Financial Centres IndexTable 18Direct Real EstateTransactionVolumesand Real EstateTransparencyIndex – SelectedFinancial CentresFinancial Centre Direct Real Estate Real EstateTransaction Volumes Transparency IndexLondon 43,037 1.25New York 29,000 1.15Paris 27,794 1.40Tokyo 23,419 2.40Boston 8,723 1.15Chicago 8,477 1.15Stockholm 7,349 1.38Hong Kong 6,987 1.30Oslo 6,718 1.96Osaka 6,693 2.40Singapore 5,931 1.44San Francisco 5,653 1.15Toronto 4,612 1.21Dublin 4,233 1.85Washington D.C. 4,014 1.15Sydney 3,992 1.15Madrid 3,802 1.91Munich 3,652 1.67Beijing 3,647 3.50Moscow 3,536 3.22Frankfurt 3,372 1.67Shanghai 3,195 3.50Warsaw 3,016 2.76Vienna 2,957 1.85Brussels 2,182 1.88Melbourne 2,007 1.15Amsterdam 1,970 1.37Edinburgh 1,913 1.25Rome 1,739 2.14Milan 1,586 2.14Luxembourg 1,579 1.88Seoul 1,312 2.88Prague 1,284 2.69Helsinki 1,243 1.63Geneva 1,197 1.94Zurich 1,197 1.94Mumbai 1,002 3.46Source : new infrastructure factors have been added to the GFCI,provided by Jones Lang LaSalle. Direct Real Estate TransactionVolumes gives an indication of how busy the property market ineach centre is. Activity levels of the property market in a financialcentre can act as an indicator of the buoyancy of that centre as awhole. The Real Estate Transparency Index seeks to measuremarket information transparency – how easy is it to find out aboutthe real estate market. The values of these indices for selectedfinancial centres are shown in Table 18.54

The Global Financial Centres IndexLondon, New York, Paris and Tokyo have far higher volumes of realestate transactions than anywhere else. The Real EstateTransparency Index (where a low score means bettertransparency) shows that most European and North Americancentres have fairly transparent markets. Markets with lesstransparency include Beijing, Shanghai, Moscow and Mumbai.The cost of occupying offices in financial centres is an importantinfrastructure factor. In the PwC report 23 there is a very broadmeasure of ‘Cost’ for the 11 centres studied. This measure is basedon the cost of business occupancy, and the cost of living andpurchasing power (these measures are taken from third partysources). The scores (a high score indicates relatively low cost) areshown in Table 19.Table 19Cost Ranking –SelectedFinancial CentresFinancial Centre Rank Cost ScoreAtlanta 1 29Los Angeles 2 26Chicago 3 25Toronto 4 19Frankfurt 5 18Shanghai 5 18New York 7 17Singapore 8 16Tokyo 9 14Paris 10 9London 11 7Source : scores in this index support the other property cost indices inthat they show London, Paris, Tokyo, Singapore and New York asthe most expensive centres to live and run a business in.Although London is one of the world’s leading financial centres, itfalls behind other centres in terms of transport infrastructure.Complexity in the system, overcrowding, high prices anddelays are some of the biggest concerns expressed by those usingthe system.23 PricewaterhouseCoopers,op. cit., (March 2007).55

The Global Financial Centres IndexFinancial services professionals in London made more commentsabout the transport infrastructure than any other competitivefactor. A few representative comments were:“Transport and communications are vital. Londonwill progressively suffer if these are not corrected.”“If London wasn't so poor with public transport itwould be rated even higher.”“I have down-rated London because of itscrumbling infrastructure.”“London has become considerably less desirabledue to the restrictive carry-on baggage policies atHeathrow. It used to be a favourite city to serve asa hub for my European business trips; now I try toavoid it.”Whilst there is a focus on land transport, airports are an increasingconcern. ‘Heathrow hassle’ – queues at passport control, oneroussecurity measures and the airport’s disorganised set-up – havebeen taken up by the new City Minister, Kitty Ussher, who callsherself an ‘advocate’ for business in government and recognisesthe unhappiness felt by city executives at the experiences theyhave suffered at Heathrow.Indeed, the percentage of responses commenting oninfrastructure matters in GFCI 2 (29.6%) was the same percentageas those commenting on people matters; whereas in GFCI 1people matters were far more regularly commented upon thaninfrastructure matters (37.2% and 29.5% respectively). This is aninteresting shift in concern.Many people complain about London’s transport infrastructure. Itis interesting to note however, that transport infrastructure inLondon has been less efficient than in many competing centres forseveral decades and this has not prevented London frombecoming a leading global financial centre. London seems tosucceed despite its transport infrastructure because it performs sowell in most of the other factors of competitiveness.56

The Global Financial Centres Index5e. General Competitiveness FactorsIn some financial centres, many of the competitiveness factorscome together and form what might be described as acompetitive critical mass where the whole is greater than the sumof the parts. The GFCI model uses the following generalcompetitiveness related instrumental factors (generalcompetitiveness factors):■ Economic Sentiment Indicator, European Commission 1■ Super Growth Companies, Grant Thornton■ World Competitiveness Scoreboard, IMD 1■ Retail Price Index, The Economist 1■ Price Comparison Index, UBS■ Nation Brands Index, Anholt 1■ City Brands Index, Anholt 1■ Global Competitiveness Index, World Economic Forum1 – these indices have been updated since GFCI 1Chart 15 shows the top ten centres by GFCI ranking when onlyusing the general competitiveness factors in the prediction model.Chart 15The Top 10FinancialCentres usingonlyGeneralCompetitivenessFactorsCity >LondonNew YorkHong KongZurichSingaporeFrankfurtChicagoGenevaTokyoParis500 550 600 650 700 750 800 850GFCI rating >57

The Global Financial Centres IndexThe top three centres remain in the same positions as the overallGFCI. Further down, there is a significant jump in the rankings forthe Canadian centres of Montreal and Vancouver. This jump is inpart due to Canada being well ranked in the WorldCompetitiveness Scoreboard and the Nation Brands Index. TheScandinavian centres of Stockholm and Copenhagen alsoimproved their ratings due to high scores in the WorldCompetitiveness Scoreboard.Table 20 features the IMD World Competitiveness Scoreboard, aninstrumental factor built in to the GFCI model.Table 20The GlobalCompetitivenessScoreboard 2007versus 2006Country World Competitiveness World CompetitivenessScoreboard 2007 Scoreboard 2006USA 1 1Singapore 2 3Hong Kong 3 2Luxembourg 4 9Denmark 5 5Switzerland 6 8Canada 7 10Netherlands 8 15Australia 12 6Norway 13 12Austria 13 11Sweden 14 9Ireland 14 11China 15 18Germany 16 25Finland 17 10New Zealand 19 21UK 20 28Japan 24 16Belgium 25 26India 27 27France 28 30Italy 42 48Source: www.imd.ch58

The Global Financial Centres IndexUSA, Singapore and Hong Kong occupy the top three positions butthe UK is much lower in the rankings than might be expected. Itshould, however, be noted that this index is constructed by countryrather than by city. There are significant regional differences withinthe UK with London being more competitive, certainly as afinancial centre, than other UK cities. The UK and Germany showthe largest rises in the rankings of this scoreboard since GFCI 1.The City Brands Index, produced by Anholt, is a broad measure ofhow good a city is to live in. The index comprises a number ofcomponents including a city’s status, beauty, climate, economicopportunities, friendliness and lifestyle. Selected City Brand ranksare shown in Table 21.Table 21City BrandRanks2007 versus2006 – SelectedScoresFinancial Centre City Brand Rank 2007 City Brand Rank 2006Sydney 1 3London 2 1Paris 3 2Rome 4 4New York 5 7Washington D.C. 6 14San Francisco 7 11Geneva 10 13Amsterdam 11 6Madrid 12 9Toronto 14 12Milan 19 16Tokyo 22 19Brussels 24 15Stockholm 26 17Edinburgh 30 18Prague 34 20Singapore 35 22Hong Kong 37 21Source: www.citybrandsindex.comThe latest version of the City Brand Index shows Sydney in 1st placeand London falling to 2nd place from 1st place in 2006. Paris is in3rd place down from 2nd with New York in 5th place and the otherUSA centres, Washington D.C. and San Francisco, in 6th and 7thplaces respectively. The Asian centres ranked fairly low in thisindex. Tokyo, Hong Kong and Singapore are in 22nd, 35th and 37thplaces respectively.59

The Global Financial Centres Index6. Financial Centre AssessmentsThis section examines the responses of financial servicesprofessionals to a comprehensive questionnaire (financial centreassessments). Online questionnaires on financial centrecompetitiveness have been conducted over the past two years.Web links to the questionnaire sites were emailed to senior financialservices professionals worldwide. 825 responses have beenreceived and incorporated into GFCI 2. These responses provided11,685 centre assessments in total. An outline of the responses isgiven in Tables 22 to 25:Table 22QuestionnaireResponses bySectorSectorNumber of ResponsesBanking 220Asset Management 75Insurance 48Other Financial Services 168Professional Services 164Regulatory & Government 38Trade Associations 17Other 95Total 825Table 23QuestionnaireResponses byNumber ofEmployees inOrganisationNumber of Employees WorldwideNumber of ResponsesFewer than 100 299100 to 500 127500 to 1,000 541,000 to 2,000 472,000 to 5,000 67More than 5,000 179Unspecified 52Total 825Table 24QuestionnaireResponses byLocationLocationNumber of ResponsesLondon 470Other UK 6Europe 87New York 33Other US 15Asia 53Offshore 58Multiple or Other 103Total 825See the note inAppendix A aboutremoving home bias.60

The Global Financial Centres IndexTable 25Number ofAssessments –Top 50 FinancialCentresFinancial Centre Number of Average Standard Deviationassessments Assessment of AssessmentsLondon 784 811 141.7New York 657 810 162.5Hong Kong 333 729 190.5Singapore 303 693 197.2Zurich 303 689 196.7Frankfurt 546 674 163.8Isle of Man 90 661 216.0Geneva 274 644 210.7Paris 579 642 174.6Chicago 244 636 218.3Sydney 199 631 231.5Tokyo 240 618 223.8Boston 214 612 231.0Dublin 298 612 203.6San Francisco 196 608 231.0Luxembourg 235 594 223.3Toronto 196 588 224.2Amsterdam 266 581 207.1Channel Islands 223 568 251.5Edinburgh 247 567 228.1Dubai 193 567 225.1Shanghai 175 544 235.8Brussels 256 539 201.3Washington D.C. 198 535 239.0Melbourne 159 530 231.5Cayman Islands 169 528 253.4Munich 127 528 271.4Hamilton (Bermuda) 163 520 248.4Vancouver 153 512 250.5Stockholm 186 507 224.9Milan 202 502 211.5Montreal 151 501 236.4Madrid 207 484 198.8Vienna 174 473 213.7Copenhagen 183 462 239.2Beijing 164 454 221.4Bahrain 104 449 225.6Helsinki 167 448 218.7Mumbai 165 437 223.4Oman 97 432 243.0Johannesburg 110 429 220.7Oslo 153 426 227.0Rome 174 422 205.9Wellington 122 416 248.8Prague 161 400 213.9Seoul 136 399 226.7Osaka 89 375 219.6Lisbon 156 373 208.3Sao Paulo 88 373 225.8Warsaw 150 358 208.061

The Global Financial Centres IndexThe questions asked in the latest online questionnaire are set out inAppendix B. The responses received since the GFCI 1 to questions11 to 15 of the questionnaire (the open–ended questions) wereanalysed in more depth and Table 26 shows the percentage ofresponses that mention the different areas.Table 26Key Areas ofCompetitivenessArea of Competitiveness Percentage of people Main Concerns Raisedwho respondedBusiness Environment 31.6% Regulation (especiallySarbanes-Oxley) andcorporate taxationPeople 29.6% Availability of skilledpersonnel and labourmarket flexibilityInfrastructure 29.6% Transport infrastructure inLondon and security measuresat major airportsMarket Access 6.8% The presence of stockexchanges in financial centresIn this study, the regulatory environment is still seen as the mostimportant concern in financial centre competitiveness. Concernsremain about the level and quality of financial services regulationin the USA and in particular Sarbanes-Oxley. Levels of corporatetaxation in the UK are also seen as a detrimental factor to London’scompetitiveness.People factors are the second most important area ofcompetitiveness but it is noticeable that whilst infrastructure factorswere a fairly distant third in earlier studies, they are now jointsecond with people factors. This is in large part due to responsesfrom London about traffic congestion, substantialunderinvestment in public transport infrastructure and theinconvenience of Heathrow airport.Question 13 of the questionnaire asked if there are any financialcentres that respondents felt might become significantly moreimportant over the next two to three years. The five centresmentioned the most (based on responses received since GFCI 1)are shown in Table 27. Moscow is one of the most frequentlymentioned centres but is currently just outside the top 50 GFCIratings, in 51st place. It will be interesting to see where Moscow isplaced in the future GFCI ratings.62

The Global Financial Centres Index7. ConclusionGFCI 2 is the second in the series of GFCI reports. The top six centresin GFCI 2 have maintained the same rankings as in GFCI 1. Londonleads New York slightly in all five areas of competitiveness, i.e.people, business environment, market access, infrastructure andgeneral competitiveness. London is further ahead of New Yorkthan it was in GFCI 1. London and New York have stretched theirlead ahead of the next two strongest centres, Hong Kong andSingapore, and are now 90 points ahead (compared with 88points ahead in GFCI 1).In GFCI 1, it was clear that Hong Kong and Singapore were theleading Asian centres. These two financial centres are still wellahead of Tokyo. Zurich, a financial centre strongly focused on thetwo niche sectors of private banking and asset management, is in5th place. Frankfurt has remained stable in 6th place and Genevahas moved three places up the rankings to 7th place.GFCI 2 shows a number of significant changes since GFCI 1:■ the ratings of 18 centres went up, 24 went down and one ratingremained the same;■ seven new centres were added to the GFCI. These include theIsle of Man in 21st place, Munich in 29th place, Osaka in 36thplace and Johannesburg in 43rd place;■ transport infrastructure is even more important to London’scompetitiveness than before;■ New York continues to struggle with its regulatory environment,despite a recent lightening of Sarbanes-Oxley;■ Dubai, Shanghai, Beijing and Mumbai were frequentlymentioned as cities which will become more important; and■ Oslo, Melbourne, Vancouver and Munich were identified asvolatile.GFCI 2 reinforces GFCI 1’s conclusions that:■ there are two global financial centres – London and New York;■ the most successful financial centres score well on mostcompetitive factors;■ regulation and people factors are highly influential factors ofcompetitiveness;■ the centres identified as volatile by sensitivity analysis movedsignificantly in the new ratings, showing that their positions wereunpredictable; and■ centre connectivity is vital and helps explain why certaincentres remain competitive.None of the respondents to the online questionnaire believe thatLondon or New York City will lose their positions as global financialcentres within the next ten years. If London and New York decline64

The Global Financial Centres Indexas financial centres it will be due to a fundamental, unforeseenalteration in one or more of the factors that make financial centresattractive. Part of the continuing appeal of London tointernational companies is its cosmopolitan nature. London and toa slightly lesser extent New York are characterised by the bestinternational firms doing business with each other.Financial centre competitiveness is not a ‘zero-sum’ gamewhere one centre’s gain is another’s loss. London and NewYork are complementary to each other and each thrives on theother’s success.Once a global centre such as London or New York has beenestablished it is difficult to move. It would take either:■ a number of significant factors, acting over a number ofyears; and/or■ a fairly dramatic alteration in an indirect factor. For example;political unrest, a natural catastrophe or an unprecedentedterrorist incident.It should be noted, however, that financial centres other thanLondon and New York continue to improve their competitivenessand the global leaders should not be complacent. The USA hasexisting regulatory issues to deal with whilst the UK Governmentneeds to be cautious about large regulatory changes, tax levelsand London’s transport infrastructure.Future updates of the GFCI will aim to:■ track how updated instrumental factors reflect changing issuesin financial centre competitiveness;■ identify changes in the perceptions of financial servicesprofessionals;■ identify ‘up and coming’ financial centres and track theprogress of centres like Dubai, Mumbai, Shanghai andBeijing; and■ provide more detailed industry sector analysis once a greaternumber of financial centre assessments have been received.Please participate in the GFCI by rating the financial centres youare familiar with at:

The Global Financial Centres Index8. Appendices24 Z/Yen Limited, op. cit.,(November 2005).Appendix A –MethodologyThe GFCI provides ratings for financial centrescalculated by a ‘factor assessment model’built using two distinct sets of input:■ instrumental factors – drawn from externalsources. The infrastructure competitivenessfor a financial centre, for example, isindicated by ‘instrumental factors’ includinga cost of property survey and an occupancycosts index; a fair and just businessenvironment is indicated by ratings such as acorruption perception index and an opacityindex. Objective evidence of competitivefactors has been sought in instrumentalfactors drawn from a wide variety ofcomparative sources – 54 instrumentalfactors were used to construct the GFCI 2ratings. Not all centres have data for allinstrumental factors and the statistical modeltakes account of these gaps;■ financial centre assessments – to constructthe GFCI 2 ratings a total of 11,685 financialcentre assessments were used, drawn from825 respondents to an online questionnaire.Respondents assessed the competitivenessof financial centres which they knew. Theonline questionnaire is ongoing to keep theGFCI up-to-date with people’s changingassessments.The 54 instrumental factors were selected toreflect the 14 competitiveness factors identifiedin previous research 24 . These are shown inTable 29.At the outset of the creation of the GFCI, anumber of guidelines were set out. Theseguidelines are to ensure that centreassessments and instrumental factors wereselected and used in a way that will generatea credible, dynamic rating of centrecompetitiveness for financial servicesinstitutions.The guidelines for independent indices usedas instrumental factors are:■ indices should come from a reputablebody and be derived by a soundmethodology;■ indices should be readily available (ideallyin the public domain) and ideally beregularly updated;■ relevant indices can be added to the GFCITable 29CompetitivenessFactors and theirrelativeimportanceCompetitiveness Factors Rank Average ScoreThe availability of skilled personnel 1 5.37The regulatory environment 2 5.16Access to international financial markets 3 5.08The availability of business infrastructure 4 5.01Access to customers 5 4.90A fair and just business environment 6 4.67Government responsiveness 7 4.61The corporate tax regime 8 4.47Operational costs 9 4.38Access to suppliers of professional services 10 4.33Quality of life 11 4.30Culture & language 12 4.28Quality / availability of commercial property 13 4.04The personal tax regime 14 3.8966

The Global Financial Centres Indexmodel at any time;■ updates to the indices are collected andcollated quarterly at the end of eachquarter;■ no weightings are applied to indices;■ indices are entered into the GFCI model asdirectly as possible, whether this is a rank, aderived score, a value, a distributionaround a mean or a distribution around abenchmark;■ if a factor is at a national level, the scorewill be used for all centres in that country –nation based factors will be avoided iffinancial centre (city) based factors areavailable;■ if an index has multiple values for a city ornation, the most relevant value is used(and the method for judging relevance isnoted);■ if an index is at a regional level, the mostrelevant allocation of scores to eachcentre is made (and the method forjudging relevance is noted);■ if an index does not contain a value for aparticular city, a blank is entered againstthat centre (no average or mean is used).Only indices which have values for at leastten centres will be included.Creating the GFCI does not involve totaling oraveraging instrumental factors. An approachinvolving totaling and averaging would involvea number of difficulties:■ indices are published in a variety of differentforms: an average or base point of 100 withscores above and below this; a simpleranking; actual values (e.g. $ per square footof occupancy costs); a composite ‘score’;■ indices would have to be normalised, e.g. insome indices a high score is positive while inothers a low score is positive;■ not all centres are included in all indices;■ the indices would have to be weighted.The guidelines for financial centre assessmentsby respondents are:■ responses are collected via an onlinequestionnaire which runs continuously. A linkto this questionnaire is emailed to the targetlist of respondents at regular intervals;■ financial centre assessments will be includedin the GFCI model for 36 months after theyhave been received. Financial centreassessments from the month when the GFCIis created are given full weighting and earlierresponses are given a reduced weighting ona log scale. This scale has been revisedChart 16Log Scale fortime weightingsLog Multiple > -34 -33 -32 -31 -30 -29 -28 -27 -26 -25 -24 -23 -22 -21 -20 -19 -18 -17 -16 -15 -14 -13 -12 -11 -10-9-8-7-6-5-4-3-2-10Month >67

The Global Financial Centres Indexbetween GFCI 1 and GFCI 2 to enhance itseffectiveness; the scale used for GFCI 2 isshown in Chart 16.The financial centre assessments andinstrumental factors are used to build apredictive model of centre competitivenessusing a support vector machine (SVM). TheSVM used for the building of the GFCI isPropheZy – Z/Yen’s proprietary system. SVMsare based upon statistical techniques thatclassify and model complex historic data inorder to make predictions on new data. SVMswork well on discrete, categorical data butalso handle continuous numerical or time seriesdata. The SVM used for the GFCI providesinformation about the confidence with whicheach specific classification is made and thelikelihood of other possible classifications.reduce the risk of home bias. The model thenpredicts how respondents would haveassessed centres they are not familiar with byanswering questions such as:If an investment banker gives Singaporeand Sydney certain assessments then,based on the instrumental factors forSingapore, Sydney and Paris, howwould that person assess Paris?OrIf a pension fund manager givesEdinburgh and Munich a certainassessment then, based on theinstrumental factors for Edinburgh,Munich and Zurich, how would thatperson assess Zurich?A factor assessment model is built using thecentre assessments from responses to theonline questionnaire. Assessments fromrespondents’ home centres are excluded fromthe factor assessment model to remove homebias. This change between GFCI 1 and GFCI 2 isan improvement to the methodology toFinancial centre predictions from the SVM arere-combined with actual financial centreassessments to produce the GFCI – a set offinancial centre ratings. The GFCI isdynamically updated by either an updatedinstrumental factor or new financial centreassessments. These updates permit, forChart 17The GFCIProcessInstrumentalFactorInstrumentalFactorInstrumentalFactorInstrumentalFactorInstrumentalFactorCompetitivenessFactorCompetitivenessFactorCompetitivenessFactorCompetitivenessFactorCompetitivenessFactorInstrumentalFactor UpdateChange in FinancialCentre AssessmentsRegular Online Surveyof Financial CentreAssessmentsInstrumental FactorPrediction Engine –PropheZyUpdated GFCI published68

The Global Financial Centres Indexinstance, a recently changed index of rentalcosts to dynamically adjust thecompetitiveness rating of the centres. Theprocess of creating the GFCI is outlineddiagrammatically in Chart 17.A few features of building the GFCI using bothinstrumental factors:■ several instrumental factors can be used foreach competitive factor;■ a strong international group of ‘raters’ canbe developed as the GFCI progresses;■ sub-GFCI ratings are being developed byusing the business sectors represented byquestionnaire respondents. This could makeit possible to rate London as competitive inInsurance (for instance) while lesscompetitive in Asset Management (forinstance);■ over time, as confidence in the GFCI builds,the factor assessment model can bequeried in a ‘what if’ mode – “how muchwould London rental costs need to fall inorder to increase London’s ranking againstNew York?”Part of the process of building the GFCI wasextensive sensitivity testing to changes ininstrumental factors and financial centreassessments. The accuracy of predictionsgiven by the SVM were tested against actualassessments. Over 80% of the predictions madewere accurate to within 5%.The authors of this report would like to thankJeremy Horne of Z/Yen for all his assistance increating the GFCI. Additionally, a big thankyou goes to John Whiting – Tax Partner atPricewaterhouseCoopers, Simon Sole – ChiefExecutive of Exclusive Analysis Limited andDariusz Wojcik from Oxford University Centre forthe Environment and St. Peter’s College, forproviding unpublished data specifically for theGFCI. Finally the authors would like to thankJohn Murray of DMAP Limited and AlanHelmore-Simpson for technical support.69

The Global Financial Centres Index25 These cities are listedhere in alphabeticalorder, for clarity. On theonline questionnairethey are randomlysorted each time thequestionnaire iscompleted, to reduceany bias.Appendix B –The Online QuestionnaireThe online questionnaire runs continuously andan emailed copy of the updated report is sent toall respondents.The questions in the most recent version of thequestionnaire, launched in May 2007, are asfollows:1 Your name:2 What is your job title/main area ofresponsibility?3 The name of your organisation:4 In which industry is your organisation?Investment BankingCommercial BankingRetail BankingInsuranceLegal ServicesAccounting ServicesTrade AssociationRegulatory Body/Central BankGovernmentOther – Please Specify5 In which centre are the headquarters ofyour organisation?6 Approximately how many employees arethere at the headquarters of yourorganisation?Fewer than 100100 to 500500 to 1,0001,000 to 2,0002,000 to 5,000More than 5,0007 Approximately how many employees doesyour organisation have worldwide?Fewer than 100100 to 500500 to 1,0001,000 to 2,0002,000 to 5,000More than 5,0008 In which financial centre are you based?9 If you are familiar with any of the following(randomly sorted 25 ) European financialcentres, please rate them as locations in whichto conduct your business (1 being Very Poorand 10 being Excellent):AmsterdamAthensBrusselsBudapestCopenhagenDublinEdinburghFrankfurtGenevaHelsinkiIsle of ManLisbonLondonLuxembourgMadridMilanMoscowMunichOsloParisPragueRomeStockholmViennaWarsawZurich10 If you are familiar with any of the following(randomly sorted) financial centres, pleaserate them as locations in which to conductyour business (1 being Very Poor and 10 beingExcellent):BahrainBeijingBostonCayman IslandsChannel IslandsChicagoDubaiHamilton, BermudaHong KongJohannesburgMelbourneMontrealMumbai70

The Global Financial Centres IndexNew YorkOsakaQatarSan FranciscoSao PauloSeoulShanghaiSingaporeSydneyTokyoTorontoVancouverWashington D.C.Wellington11 Do you have any comments regarding thecompetitiveness of the financial centresmentioned?12 Are there any important financial centreswe have missed?13 Are there any financial centres that mightbecome significantly more important over thenext 2 to 3 years?14 In which financial centre (or centres) is yourorganisation most likely to open up a newoperation within the next 2 to 3 years?15 Do you have any comments on the factorsthat affect the competitiveness of financialcentres?16 We are keen to track changes in people’sperceptions about city competitiveness overtime. Would you be prepared to participate inthis survey on a regular (approximately everysix months) basis? In return you would receivea regular update on the Global FinancialCentres Index.17 Do you have any business contacts orassociates who may be interested in helping uswith this survey? If so, please forward them alink to this survey or enter their email addresshere (it will be used for no other purpose).18 Address & Telephone Number:19 Email address:71

The Global Financial Centres IndexAppendix C –The Instrumental FactorsInstrumental factors are independent indicesprovided by a number of reputableorganisations. The majority of these indices arepublicly available and updated regularly.1 – these indices have been updated since GFCI 1b – these indices have been added since GFCI 1Labour Productivity, OECD (October 2006) –The OECD provides several estimators oflabour productivity, based on GDP andemployment from their Annual NationalAccounts and hours worked from theiremployment outlook, Annual NationalAccounts and national sources. The indicatorused is GDP per hour worked, an Index usingthe USA as the base, with an index of 100.Source: www.oecd.orgInstrumental Factors for PeopleExecutive MBA Global Rankings, FinancialTimes (January 2006) – 149 business schoolsand their alumni were contacted, of which112 were ranked and 37 excluded due to toofew alumni responses (a minimum alumniresponse rate of 20% was needed for validdata analysis). There are 20 different criteriaused to determine the rankings, with weightedsalary and salary percentage increaseaccounting for 40% of the weighting.Source: www.ft.comEuropean Human Capital Index, LisbonCouncil (October 2006) – The index is used asa measure of human capital stock,deployment, utilisation and evolution in 13 EUcountries, which are ranked on ability todevelop human capital to meet thechallenge of globalisation. The rankings arebased on how each country scores in each offour individual human capital categories(Endowment, Utilisation, Productivity andDemography), with the best possible rankingbeing four and the worst 52.Source: www.lisboncouncil.netHuman Development Index, UNDP (October2006) – A measure of the averageachievements in a country in three basicdimensions of human development: a longand healthy life, knowledge and a decentstandard of living. It is calculated for 177countries and areas for which data isavailable. In addition, human developmentindicators are presented for another 17 UNmember countries for which complete datawas not available.Source: http://hdr.undp.orgEducation Expenditure, OECD (October 2006)– The OECD statistics database providesfigures for expenditure on educationalinstitutions. The GFCI uses the sum of privateand public expenditure, expressed as apercentage of GDP.Source: www.oecd.orgQuality of Living Survey, Mercer HR (April2007) 1 – A survey basing its ranks on 39 keyquality of living criteria which is regularlyupdated to take account of changingcircumstances. A total of 215 cities have beenconsidered in the latest rankings, with NewYork given an index of 100 and used as thebase score.Source: www.mercerhr.comHappiness Scores, NationMaster (January2006) – The Happiness scores are compiledfrom responses to the question: "Taking allthings together, would you say you are: veryhappy, quite happy, not very happy, or not atall happy?" The statistic was then obtained byadding the percentage of people ratingthemselves quite happy or very happy andtaking off the percentage rating themselvesnot very happy or not at all happy.Source: www.nationmaster.comWorld’s Top Tourism Destination, World TourismOrganisation (August 2006) 1 – The 25 mostpopular tourist destinations in the world areranked, based on the number of internationaltourist arrivals over the last year.Source: www.unwto.orgAverage Days with Precipitation per Year,Sperling (June 2007) b – An indication of typicalweather experienced in cities around theworld. Precipitation is defined here as any72

The Global Financial Centres Indexproduct of the condensation of atmosphericwater vapour that is deposited on the earth’ssurface i.e. rain, snow, hail, sleet and virga(precipitation that begins falling to the earthbut evaporates before reaching the ground).Source: www. bestplaces.netInstrumental Factors for BusinessEnvironmentCentral Government provides a deduction inrespect of sub-central income tax.Source: www.oecd.orgEmployee Effective Tax Rates, PwC (July 2007) 1 -– The tax rates were calculated by dividing thenet compensation for each city by its grosscompensation. PwC provided specific figuresfor the GFCI based on a more typical financialservice employee.Administrative and Economic Regulation,OECD (April 2005) – The OECD conducted astudy on product market regulation,calculating indicators for both administrativeand economic regulation. The average ofthese indicators is used as a combinedmeasure of both forms of regulation.Source: www.oecd.orgBusiness Environment, Economist IntelligenceUnit (March 2006) – A ranking model applied tothe world’s 82 largest economies (accountingfor more that 98% of global output, trade andForeign Direct Investment). It measures thequality of their business environment (adjustedfor size) and its components. The model is alsoused to generate scores and rankings for thelast five years and a forecast for the next fiveyears.Source: http://store.eiu.comWage Comparison Index, UBS (September2006) – A study comparing gross and net wagesof workers across 71 cities, using New York as thebase city (with an index of 100). The indices werecreated using effective hourly wages for 14professions, weighted according to distribution,net after deductions of taxes and social security.The GFCI uses the gross wage index.Source: Tax Rates, OECD (September 2006) –The OECD provides annual figures of averagepersonal income tax rates at average wages,by family type. For the purposes of this study, theall-in rate (a combination of central and subcentralgovernment income tax, plus employeesocial security contribution, as a percentage ofgross wage earnings) for a single person with nochildren was used.Source: www.oecd.orgTotal Tax Rates, World Bank/PwC (November2006) – The Total Tax Rate measures the amountof tax payable by the business in the secondyear of operation, expressed as a share ofcommercial profits. It is the sum of all thedifferent taxes payable after accounting fordeductions and exemptions. The taxeswithheld (such as sales tax or value added tax)but not paid by the company are excluded.The GFCI uses figures provided by PwC for afictional financial services company, ratherthan for a manufacturing company as used forthe World Bank.Source: www.doingbusiness.orgCorporate Tax Rates, OECD (September 2006) –The OECD provides annual figures of CentralGovernment Corporate Income Tax Rates. Thebasic rate (inclusive of surtax) is used andadjusted to show the net rate where theTotal Tax Receipts (As a Percentage of GDP),OECD (November 2005) 1 – The statistics aretaken from the taxation table in the OECDFigures report.Source: www.oecd.orgEase of Doing Business Index, World Bank(October 2006) 1 – A ranking was given to 175economies based on their ease of doingbusiness, with a high ranking indicating that theregulatory environment is conducive to theoperation of business. The index averages thecountry's percentile rankings on ten topics,made up of a variety of indicators, giving equalweight to each topic.Source: www.doingbusiness.orgOpacity Index, Kurtzman Group (October 2004)– 65 objective variables from 41 sources areused to obtain the index, which is a score73

The Global Financial Centres Indexbetween zero and 100, calculated byaveraging the scores given to each of five subindices (corruption, efficacy of legal system,deleterious economic policy, inadequateaccounting/governance practices anddetrimental regulatory structures).Source: www.opacityindex.comviolent and political risk worldwide. Forecastsdraw on the expertise of a team of over 200internationally located political risk experts.Source: www.exclusive-analysis.comInstrumental Factors for Market AccessCorruption Perceptions Index, TransparencyInternational (June 2007) 1 – Expert assessmentsand opinion surveys are used to rank morethan 150 countries by their perceived levels ofcorruption. Data is gathered from sourcesspanning the lastthree years.Source: www.transparency.orgCapital Access Index, Milken Institute (June2007) 1 – A study looking at 121 countriesrepresenting 92% of global GDP, and rankingthem on more than 50 measurements,including the strength of their banking systemsand the diversity and efficiency of financialmarkets.Source: www.milkeninstitute.orgIndex of Economic Freedom, HeritageFoundation (June 2007) 1 – A study of 161countries against a list of 50 independentvariables divided into ten broad factors ofeconomic freedom. The higher the score on afactor, the greater the level of governmentinterference in the economy and the lesseconomic freedom a country enjoys.Source: www.heritage.orgEconomic Freedom of the World Index, FraserInstitute (September 2004) – This is a jointventure involving 71 research institutes in 71countries around the world. The index isdivided into five components – size ofgovernment, legal structure/security ofproperty rights, access to sound money,freedom to trade internationally andregulation of credit, labour and business.Source: www.freetheworld.comFinancial Markets Index, Maplecroft(September 2006) – Scores were given tocountries based on their specific risks tofinancial system stability over a short-termfinancial investment time horizon. The indexfocuses on five different types of risk –economic, sovereign, banking system, stockmarket and corporate sector – with eachcontaining several different components.Source: http://maps.maplecroft.comPolitical Risk Score, Exclusive Analysis(November 2006) 1 – Scores were given tospecific countries based on expert forecasts ofSecuritisation, IFSL (June 2007) 1 – A list ofcountries, ordered by their annual value ofsecuritisation issuance. Securitisation offers away for an organisation to convert a futurestable cash flow into a lump sum cashadvance. This conversion is achieved byconverting the future cash flows intotradeable securities which are sold as a meansof raising capital.Source: measures from the World Federation ofExchanges (June 2007) 1 : Value of ShareTrading, Volume of Share Trading, Volume ofTrading Investment Funds, Value of BondTrading, Volume of Bond Trading – The WorldFederation of Exchanges provides a monthlynewsletter called Focus, which containsmonthly statistics. For all of the indicatorsused in the GFCI, the latest available year-todatefigures were utilised.Source: Banking Service Centres, GaWCResearch (July 1999) – Data for ten of thetop 25 banks in the world were used todefine significant presences. For eachsignificant presence a city had, it wasawarded one point.Source: Accountancy Service Centres, GaWCResearch (July 1999) – Data from five of the sixlargest accountancy firms in the world wereused to define significant presences, with each74

The Global Financial Centres Indexcity scoring one point for each significantpresence.Source: Legal Service Centres, GaWC Research(July 1999) – Centres are scored based on thenumber of particular law branches theycontain. For the UK and the USA, centres scorepoints according to the number of law firmswith foreign branches and for the rest of theworld, centres are scored based on thenumber of UK/USA law branches in the city.Source: International Finance Index, Dariusz Wojcik(June 2007) b – Represents the average of acountry’s share in international financialservices activities. It consists of four majorgroups of services that are characteristic forinternational finance: external bank loans anddeposits, trading of cross-listed stocks,international debt securities and over-thecountertrading of foreign exchange plusinterest rate-based derivatives. The last twocomponents are combined as they are veryclosely related to each other. The index isderived from a sample of 41 countries thataccount for 91% of world’s GDP, including allsignificant international financial centres.Source: Dariusz Wojcik – Oxford UniversityCentre for the Environment and St. Peter’sCollegeThe International Finance Location Quotient,Dariusz Wojcik (June 2007) b – Illustrates therelationship of a country’s share ininternational financial services to its share ofGDP in a sample of 41 countries that accountfor 91% of world’s GDP (i.e. all major worldeconomies). Countries with high IFLQ have adeveloped international financial servicessector but the higher the score, the moredependent their economy is on internationalfinancial services.Source: Dariusz Wojcik – Oxford UniversityCentre for the Environment and St. Peter’sCollegeThe International Finance Diversity Index,Dariusz Wojcik (June 2007) b – A measure ofhow well diversified a country’s internationalfinancial services sector is. Financial servicesare divided into four major groups: externalbank loans and deposits, international debtsecurities, trading of cross listed stocks andover-the-counter foreign exchange plusinterest rate-based derivatives. The more theseservices are diversified, the higher the value ofthe index. A value of one means that the fourmajor groups are equally diversified and avalue of zero means that the relevantcountry’s whole international financial sector isbased on only one of these groups.Source: Dariusz Wojcik – Oxford UniversityCentre for the Environment and St. Peter’sCollegeRelative Global Network Connectivity,Mastercard (March 2007) b – a study examiningthe pattern of how centres are connectedthrough the office networks of 100 leadingfirms offering specialised corporate services(including law, advertising, consulting,accounting and insurance) to the financialsector.Source: www.mastercard.comInstrumental Factors for InfrastructureGlobal Office Occupancy Costs, DTZ (June2007) 1 – A guide on accommodation costs inprime office locations, covering 111 businessdistricts in 43 countries worldwide, comparingthe occupancy costs per workstation asopposed to unit area, in order to better reflectthe true costs of accommodation. To facilitateranking on a global scale, total occupancycosts per workstation is expressed in USD.Source: www.dtz.comOffice Space Across The World, Cushman &Wakefield, Healey & Baker (February 2006) –A report focusing on occupancy costs acrossthe globe over the prior 12 months, ranking themost expensive locations in which to occupyoffice space.Source: www.cushmanwakefield.comCompetitive Alternatives Survey, KPMG(January 2006) – A measure of the combinedimpact of 27 cost components that are mostlikely to vary by location, as applied to specificindustries and business operations. The eight-75

The Global Financial Centres Indexmonth research program covered 128 centresin nine industrialised countries, examining morethan 2,000 individual business scenarios,analysing more than 30,000 items of data. Thebasis for comparison is the after-tax cost ofstart-up and operations, over ten years.Source: www.competitivealternatives.comOffices With Air Conditioning, Gardiner &Theobald (June 2007) 1 – Using data from theInternational Construction Cost Survey. TheGFCI uses the mid point of the lowest andhighest cost of an office with air conditioning(given in US$ per square foot).Source: www.gardiner.comEuropean Cities Monitor, Cushman &Wakefield, Healey & Baker (September 2006) –An annual study examining the issuescompanies regard as important in decidingwhere to locate their business. There are atotal of 12 issues and the overall scores arebased on survey responses from 507companies in nine European countries, witheach respondent ordering the 12 issues interms of importance. A weighting system isthen used to determine the overall city scores.Source: www.cushmanwakefield.comGlobal Property Index, IPD (June 2007) 1 – TheIPD Global Property Index is intended tomeasure the combined performance of realestate investments held in mature investmentmarkets worldwide. This index represents IPD’sfirst attempt to create a composite globalindex which is properly rebalanced toaccurately reflect national market sizes andreports global real estate investmentperformance in all major investor currenciesback to the start of this decade. The index isbased on the IPD indices for Austria, Canada,Denmark, France, Germany, Ireland, Italy,Netherlands, Norway, Portugal, South Africa,Spain, Sweden, Switzerland and the UK.Source: www.ipdglobal.comdeals are excluded. Data is from over 150offices worldwide as well as third-party dataproviders.Source: Estate Transparency Index, Jones LangLaSalle (July 2007) b – The transparency ofglobal real estate markets is ranked accordingto responses to 27 questions on a questionnaire– with a score of one being ‘transparent’ anda score of five being ‘opaque’. Ranking isqualitative following global categorisationstandards and is conducted by Jones LangLaSalle research and capital marketsprofessionals and partners.Source: Factors for GeneralCompetitivenessEconomic Sentiment Indicator, EuropeanCommission (June 2007) 1 – An indicator ofoverall economic activity, based on 15individual components, split between fiveconfidence indicators, which are weighted inorder to calculate the final score. Theconfidence indicators (and their weightings)are: industry (40%), services (30%), consumer(20%), retail trade (5%) and construction (5%).Source: http://ec.europa.euSuper Growth Companies, Grant Thornton(March 2006) – A ranking of countries basedon the proportion of Super GrowthCompanies (companies which have grownconsiderably more than the averagemeasured against key indicators includingturnover and employment) within thecountry. The index is a unique researchproject, forming part of the Grant ThorntonInternational Business Owners Survey (IBOS),which surveys more than 7,000 businessowners in 30 different countries.Source: www.grantthorntonibos.comDirect Real Estate Transaction Volumes, JonesLang LaSalle (July 2007) b – This measures thetotal value of commercial real estate traded ina market during a 12 month period (includingOffice, Retail, Industrial and Hotel investments).Residential, Development and Entity-levelWorld Competitiveness Scoreboard, IMD (June2007) 1 – An overall competitiveness ranking forthe 61 countries and regional economiescovered by the World CompetitivenessYearbook. The economies are ranked from themost to the least competitive and76

The Global Financial Centres Indexperformance can be analysed on a time-seriesbasis.Source: www.imd.chRetail Price Index, The Economist (June 2007) 1 –The Economist provides weekly economic andfinancial indicators, including a chart on pricesand wages. The GFCI uses the percentagechange in consumer prices over the last yearas a measure of Retail Price Index.Source: www.economist.comrankings of global competitiveness. The latestsurvey polled over 11,000 business leaders in125 economies worldwide.Source: www.weforum.orgPrice Comparison Index, UBS (September 2006)– Living costs across 71 metropolises arecompared using a basket of 95 goods and 27services. The results are used to compile twoindices, one including the costs of housing andenergy (which is the version used for the GFCI)and the other excluding such costs. New Yorkwas used as the base city, with an index of 100.Source: Brands Index, Anholt (June 2007) 1 - Ananalytical ranking of the world's nation brands,updated each quarter using survey responsesfrom 25,900 consumers in 35 nations. The surveymeasures the power and appeal of a nation’sbrand image, showing how consumers aroundthe world see the character and personality ofthe brand.Source: www.nationbrandindex.comCity Brands Index, Anholt (June 2007) 1 - Ananalytical ranking of the world’s city brands,updated quarterly using survey responses fromnearly 20,000 consumers in 18 countries. Theresults determine how centres are perceivedby others in terms of six components –international status/standing, physicalattributes, potential, pulse and basic qualities(which include hotels, schools, public transportand sports).Source: www.citybrandsindex.comGlobal Competitiveness Index, WorldEconomic Forum (September 2006) – Acombination of publicly available hard dataand the results of the Executive Opinion Survey(a comprehensive annual survey conductedby the World Economic Forum, together with itsnetwork of partner institutes in the countriescovered by the report) were used to create77

The Global Financial Centres IndexBibliographyBeaverstock, Jonathan V.; Hayler, Michael; Pain,Kathryn & Taylor, Peter J., Comparing Londonand Frankfurt as World Cities: A Relational Studyof Contemporary Urban Change, Anglo-German Foundation for the Study of IndustrialSociety, (August 2001).Central Intelligence Agency, World Factbook,(July 2007).Centre for the Study of Financial Innovation,Sizing up the City – London’s Ranking as aFinancial Centre, Corporation of London, (June2003).Wojcik, Dariusz, The International Finance Indexand its Derivatives. Working Papers inEmployment, Work and Finance, WPG 07-12,Oxford University Centre for the Environment,(July 2007).World Bank, Governance Matters 2007,Worldwide Governance Indicators, (2007).Z/Yen Group Limited, The Global FinancialCentres Index 1, City of London, (March 2007).Z/Yen Limited, Cost per Trade Surveys, (2003 –2006).The Economist, A Place in the Sun – A SpecialReport on Offshore Finance, (24 February 2007).The Economist, Briefing on FinancialExchanges: Buy, Buy, Buy, (pp 89-91, 26 May2007).Z/Yen Limited, The Competitive Position ofLondon as a Global Financial Centre,Corporation of London (November 2005).The Institute of Directors, The SME Glass Ceiling,Growth Obstacles in 2007, (August 2007).Mastercard Worldwide, The Dynamics of GlobalCities and Global Commerce, (Quarter 2 2007).McKinsey & Company, Sustaining New York’sand the US’ Global Financial ServicesLeadership, (January 2007).Oxford Economic Forecasting, London’s Placein the UK Economy 2006-07, City of London,(November 2006).PricewaterhouseCoopers, Cities ofOpportunity, PricewaterhouseCoopers &Partnership for New York City, (March 2007).Sassen, Saskia, The Global City, PrincetonUniversity Press, (1999).78

The City of London CorporationThe City of London is exceptional in manyways, not least in that it has a dedicated localauthority committed to enhancing its status onthe world stage. The smooth running of theCity’s business relies on the web of highquality services that the City of LondonCorporation provides.Older than Parliament itself, the City of LondonCorporation has centuries of proven success inprotecting the City’s interests, whether it bepolicing and cleaning its streets or in identifyinginternational opportunities for economicgrowth. It is also able to promote the City in aunique and powerful way through the LordMayor of London, a respected ambassador forfinancial services who takes the City’scredentials to a remarkably wide andinfluential audience.Alongside its promotion of the businesscommunity, the City of London Corporationhas a host of responsibilities which extend farbeyond the City boundaries. It runs theinternationally renowned Barbican Arts Centre;it is the port health authority for the whole of theThames estuary; it manages a portfolio ofproperty throughout the capital, and it ownsand protects 10,000 acres of open space inand around it.The City of London Corporation, however,never loses sight of its primary role – thesustained and expert promotion of the ‘City’,a byword for strength and stability, innovationand flexibility – and it seeks to perpetuate theCity’s position as a global business leader intothe new century.

The Global Financial Centres Index 2 September 2007Spine

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