Role Of Information Technology In Investment Services Industry

1955 words - 8 pages

INTRODUCTIONInnovative use of technology is essential for the investment services industry. Technology advances improve efficiency and effectiveness in front and back-office operations while reducing costs. In this paper I will begin by showing how technology has impacted the securities markets. Then I will show how technology has impacted all aspects of the investment process from order management to trade execution, settlement instruction communication and pre-settlement matching.SECURITIES MARKETSHistoryUntil the early 1960's, the trade order process was manual. An order received by a broker is telephoned to the firm's trading booth on the exchange floor. Then, the floor broker delivers the paper ticket offer to the specialist. The trade is then executed and the customer advised in the reverse.In the late 1960's the process did not work anymore. In response, the exchanges shortened trading hours. The shortened hours were put in place so that brokerage back-offices could handle the paperwork.In the 1970's, three electronic communication systems were created to support the National Market System. These systems improved order delivery and execution efficiency. These and more advances in technology allowed the average daily trading volume increase from 178.9 million share in 1992 to 501.9 million shares in 1997.CurrentAdvances in technology make it possible to get real-time and cost-effective information, increase trade processing speed and decrease trading cost. The Internet has impacted the securities market in three ways. Lowered market entrance barriers, created a new value proposition and new prices.First, lowered market entrance barriers. Internet provided a medium for almost anyone to offer investment services. Because of the vast amount of information and the low cost of trade execution over the Internet. More people can provide the same services as traditional investment services firms. The ease of being able to offer investment services online, decreased entrance barriers. Online brokerage services evolved.Second, the Internet created a new value proposition for individual investors, an easy and cost-efficient way to manage their portfolios. The vast amount of information available in real-time to individual investors gives them as much information as much as institutional investors. They no longer needed the total package offered by traditional investment services. Price unbundling happened as investors only wanted execution services. Online brokerage was born to provide trade execution services with low commissions. Soon traditional firms started to offer their own version so online services. Online open accounts have grown from 4 million to 10 million in the last three years.Then came the new price. As stated above, price unbundling allowed investors to only pay for the services needed. And the lower barriers to entry increased competition that drove down trading costs.ORDER MANAGEMENTInvestment services industry experiences increased...

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