A recent tour of the Australian stock exchange drove home for Bill Hartnett, Microsoft Corp.s director of financial services, the impact of the Internet on financial services firms.
The only evidence that the exchange was up and running came from screens around the room that flashed changing stock prices. The trading floor itself was devoid of people, and has been since automated trading was introduced in 1998.
Mr. Hartnett, a panelist at an Intel Corp.-sponsored conference in Chicago last week, said the Australian exchange illustrated that security concerns, technological challenges and even the ingrained inertia of an institution like the New York Stock Exchange will not stop the advance of the Internet into financial services.
What it boils down to for the people in the industry is better, faster, and cheaper, said Jerry Tellefsen, senior vice president of New York-based Tellefsen Consulting Group and moderator of the panel. The panelists agreed that financial services companies that fail to keep pace with technology will be quickly left behind.
Even the New York Stock Exchange will not be far behind in turning to automation, Mr. Hartnett said, despite being the one with the most entrenched interest in keeping it the way it is now.
Keeping up will not be easy as the industry undergoes the tremendous stress of mergers, increased competition, and heightened technological demands, Mr. Tellefsen said.
The most important thing is to understand what technology is out there and understand the technology of the future to ensure that platforms will not become outdated within two years, said Douglas Moore, Nasdaqs associate vice president of telecommunications. Nasdaq works closely with vendors to meet service needs, he said.
But planning even two years ahead is difficult, given the speed of technological advancement and regulatory change, said Adam Miller, system architect for National Discount Brokers NDB Capital Markets.
With the volatility weve seen in the past two years, its almost like 18 to 24 months is too long, he said. Things come that you have to deal with within three-month time frames.
NDBs primary technological goal is to give customers timely executions, Mr. Miller said. If we dont give them timely execution, theyre going to go elsewhere, he said. Continuing to immerse myself in the technologies that are available has been critical for me.
As the leader in global trading, the New York Stock Exchange can afford to take its time to implement e-trading, but eventually it will be necessary, Mr. Miller said. The exchange wont let its leading position deteriorate because of technological capabilities, he predicted.
Its clear that the auction marketplace can be anywhere in the world and enable dealers and brokers to participate without actually having to be there, Mr. Miller said.
The shift to Internet-based trading and business-to-business online services is already well under way, the speakers said. Pointing out that about 40% of retail trades are now carried out online, Mr. Hartnett said, The public Internet will be the perfect mechanism for doing this, at lower and lower prices.
While online security has improved, theres still a lot of paranoia out there about whether those efforts are truly, truly secure, said Nasdaqs Mr. Moore. When you look at brokers who have a lot of money on the line, they want to make sure that networks and systems are as reliable as possible.
Internet security is reliable enough for e-trading, Mr. Hartnett said, but the rest of the question is: compared to what? Online trading is already safer than the traditional phone system and will become safer still, he said.
Satish Naralkar, chief information officer of the National Stock Exchange of India, said security tools are constantly being upgraded; todays tools are not good enough for tomorrow. Its an ongoing game, he said, but the Internet is never going to be completely secure.