THE INTERNET AND THE FINANCIAL MARKET REVOLUTION

BY ZAFAR SHAIKH
May 08 - May 14, 2006

The world is experiencing the formidable enhancement in the reputation of the Internet in recent times. And certainly the uncontrolled dissemination of the Internet has led to the number of users sky rocketing globally. Its effects on the financial markets have been hidden from none. It has bought forward the concept of Online Brokerage, Risk Management and Investing systems and technologies.

These Online Brokerage & Investing systems provide solutions for the brokerage and investment sector capitalizing on the impact of new and developing technologies within the financial sector. The major objective of these technologies is to assist the brokers, members or clients in understanding the possible disinter mediating effects of new technologies into opportunities for new business initiatives.

Beyond any doubt the Internet has changed the traditional trading and financial services landscape forever.

Online brokerage has shaped and fashioned the ground breaking revolutionary Internet business model. Managing risk, reducing commissions, creating access to real -time, high quality information pools, and presenting direct access to financial markets Internet brokerage has radically altered the investment methods and norms. According to a research about 50% of all U.S. retail-based brokerage transactions are now being executed online. This is the in thing now and everyone in the financial sector is taking notice. In Pakistan now conventional brokers using traditional methods as well as banks and other integrated financial service providers are on the look out to broaden their scope while mounting the wealth of service in the race to grab market share across the global marketplace.

A decade ago, the financial services mediator was fundamental to the process of investing a client's assets providing services like access to real time information, access to products like securities, mutual funds, deal execution on demand, consultation and assistance etc. But the technology and internet age has bought an end to this monopoly.

Today there are organizations that offer advanced information technology solutions to the financial services industry. With Internet enabled trading systems they provide real-time streaming quotes, market watch, news, market research etc. These powerful trading operating systems have real time placement and execution capabilities with true risk management, online trading, trade surveillance, proactive compliance, converting these areas into powerful products on the etrading horizon so necessary to become a part of the financial global village.

As a value addition due to the fact that distribution, coverage and communication through the Internet is extremely effective, the cost to the member, agent or consumer in a trading environment dealing in stocks and securities products is radically slashed making it lower than through traditional distribution channels.

THE BROKER AND THE INTERNET

Nonetheless there is yet room for a lot of acclimatization to be done towards the Internet and web enabled trading systems. However in reality online trading and brokerage is steadily entrenching itself into mainstream brokers houses. As for the future with the help of these internet technologies, we predict that the smart investor will be able to propel their brokerage and trading firms to giddy heights.

The financial players however, look for return on Investments and will only welcome systems that provide reckonable cost savings or add value to the style in which their business is carried out. These systems will portray a startling challenge to the conventional and habitual ways of doing business once the ins and outs of the debt markets can be fully contained in electronic systems, an advantage which cannot be easily ignored. Moreover the modern etrading systems have the ability to obtain adequate order-flow and deliver the market with assessable, reckonable and major liquidity pots.

THE CHALLENGE

As mentioned previously, in the trading world it is apparent that the Internet is becoming an eternal fixture with its mere presence likely to increase general interest and activity in the financial sector to great heights. Investors ignoring this opportunity will no longer be able to stay ahead, be less informed and will loose out in every aspect in this globalization age.

But for firms focusing on methods to assure that their brokers excel in providing their clients with quality and value addition will have to respond to the inevitable resistance to change within their organizations. But this is the cost they have to bear in order to stay ahead as more profitable visionaries of their time. Thus training on these new tools and environments will be a serious component in recasting the brokers role as a more complete financial planner. For those who stay unperturbed to respond to the change around them are likely to falter in and loose out forever.

One can safely predict that the internet and the web based trading systems will provide unlimited opportunities for brokerage firms to find creative ways to add value to the process of risk management, real-time transaction executions and investing.

MARKET SHIFT IN THE US

The U.S. has been wittiness to a market that has traditionally traded over-the-counter, with contributors to the market executing transactions through vocal means. But shift in the market in recent years is obvious.

Online brokerage users were estimated at 6 million in 2000 and are expected to grow to 14 million by the end of 2003, according to Celent Communications. Their research also predicts that among the top 100 global securities firms, based on core capital, currently 28 percent offer transactional capability to their customer base via the Internet.

By means of electronic media such as communication networks making use of electronic messaging services members, agents and clients interrelate more actively and progressively. These principal reasons have caused the need for conception, formation and manufacture of increasingly sophisticated systems that permit immediate execution of transactions electronically. The present times have also been witness to these surrogate electronic, trading systems enjoying remarkable success in the U.S. equity markets. The esteem, admiration and respect of these systems is expected to cultivate extensively in the next decade. It wont be an over statement to predict that in certain market sectors this may one day account for the mass and bulk of all trading activity.

The unparalleled escalation of the use of the Internet, has allowed for exceptional connectivity amongst nearly all market participants. The Internet has without doubt been amongst one of the several supreme reasons complementing to the amplified popularity of electronic trading systems. The size of the investor is not important as even the smallest individual has complete access to tools and sophisticated information sources that were, until recently, the private realm of institutional investors. The very minimal amount of fees associated with the service has also acted as a catalyst in the formula.

As for the future, IT spending by trading and brokerages will be highest in areas where firms feel they can provide front-end value to their brokers and clients. For the moment we have investors which are becoming more and more demanding, active and occupied, with multiple choices to invest on the one hand. And brokers that have to deal with this heavy traffic both at the customer relation or front office and the back office level on the other. An ideal situation for both these parties is to reap benefits from state of the art online trading systems integrated fully with the broker back office in real time providing complete financial operating system environments for active decision support and risk management. The outcome of all this would be a very established and matured trade and brokerage LAN/web scenario fully focused on skill and optimum utilization of resources, an extraordinary achievement by any standards.