INFORMATION SYSTEMS IN THE SECURITIES INDUSTRY

The securities industry bring together those who need capital and those wishing to invest. It has the intermediary role of facilitating the development of capital. It provides advice, accepts risk, and offers marketing services to ensure that an orderly market for the issuing and trading of securities is maintained.

Securities here refer to stocks and bonds, money-market securities, and instruments which have been developed to allow hedging and speculation in securities and commodity markets - i.e. options and futures contracts. Two factors which are essential to the operation of the securities industry the maintenance of an orderly market the availability of trading information.

Organizations Composing the Securities Industry Three types of organizations traditionally compose the securities industry: Investment banks perform the services surrounding a public offering of the stocks and bonds of a corporation; Investment banks assume the risk of a public offering of investments by guaranteeing their purchase—i.e., underwriting them. Brokers manage the buying and selling of securities; Compete on the reputation of their research and the quality of service Exchanges Provide an orderly marketplace for trading. Provide a vehicle for setting prices and actually conducting transactions. Operated on a membership basis.

Industry Users The demands and characteristics of users of the industry are major determinants of industry structure. The organizations of the securities industry serve as intermediaries between two sets of users: capital seekers and investors. Organizations Seeking Capital Investors Institutional investors: special-interest funds and companies such as pension funds, mutual funds, insurance companies. Deal in large blocks of securities Individual investors

The demands of institutional investors have been, in large part, responsible for much of the automation of trading and clearing by the securities industry. Exchanges need to attract institutional capital to maintain the marketplace, yet information technology, combined with institutional traders’ level of market expertise, makes off-market trading a viable alternative for these traders. The volume of trading conducted by institutional investors makes those investors valuable clients for both brokers and exchanges.

Functions of the Securities Industry The most significant role of the securities industry is in the development of capital. Information Dissemination Counselling/ Advisory services Marketing of Securities Accepting Risk

Role of Technology in Supporting the Functions of the Industry Information Dissemination Function Cost of gathering, storing and accessing information. Need for quality information for better decisions. Reporting of securities trades across larger geographical distances, and the need for real-time transmission of information Counseling or advisory services Need for analytical tools to support advisory services provided to investors concerning potential investments.

Role of Technology in Supporting the Functions of the Industry contd Marketing of Securities “Marketing” here is defined as those activities designed to identify and meet the needs of clients; i.e., both seekers of capital and investors. Information technology may affect those marketing functions of the securities industry that comprise product development: how can products be packaged? sales or brokerage: selling of securities to the investor Pricing: transparent pricing. Smaller spreads between the ask and bid price

Old Technologies Securities firms and exchanges clustered to facilitate the communications needed for the operation of the market. Messengers were used to convey information from the trading floor Since the introduction of the telegraph, communications technologies have been used by the industry to convey information in the industry.

The expansion of securities trading can be related to three communications technologies: The telegraph linked exchanges, brokers, and investors and made decision making on investments by someone not on Wall Street practical for the first time. Then the electric stock ticker tape was invented. the transatlantic cable Made an international market feasible the telephone Telephones were first used to convey orders from brokers to the floor

Stock ticker tape The telegraph