78. Internet/ Electronic trading (etrading) as a method of trading securities (stocks, bonds).

According to a 2006 research report entitled "Top 10 Strategic IT Initiatives in Global Capital Markets for 2006: Automation Rules" from the industry consulting firm Financial Insights, creating new efficiencies is not new to the capital markets arena. What is new is the accelerated pace at which change is occurring, driven by regulatory, technological and economic factors.

The internet has caused major shifts in investor behavior and expectations. No other sector of the world's economy has been affected by the rapid development of e-commerce as much as the securities industry. Accordingly, investors want the instantaneous trading and access-to-information capabilities that only online technologies can provide. Worldwide, markets and regulators have responded quickly to meet their needs.

Electronic communications networks (ECNs) and electronic stock exchanges are making the most impact on investors. An ECN is an automated system for trading stocks away from a stock exchange. ECNs were authorized in 1998, when Congress and the Securities and Exchange Commission (SEC) wanted to increase industry competition for automated trading in over the counter (OTC) markets.

Many investors believe that the passive matching of buyers and sellers through automated trading cannot match a stock exchange's ability to provide a means for finding more accurate bid and offer prices. Exchanges continuously attract large numbers of prospective buyers and sellers who provide a wide range of bids and offers. Proponents of stock exchanges believe that this creates a more reliable price discovery mechanism than passive order matching through an ECN.

Meeting the growing demand for faster trading and access to investment information will continue to create new and more advanced electronic trading venues. The New York Stock Exchange's merger with Archipelago Holdings has changed the NYSE into a "hybrid" stock market, allowing investors to place orders through NYSE Arca, its new automated trading platform or its traditional floor brokers. Large or complex orders will continue to be routed through floor traders. Brokers will be able to buy and sell shares of NYSE-listed stocks electronically, in quantities of up to one million shares. Orders are expected to take less than one second to execute, down from an average of nine seconds.

The development and widespread adoption of electronic trading venues represents far more than a fast new way to trade stocks. These technologies give companies listed on the new electronic markets access to pools of capital all over the world. Investors will be able to buy and sell shares of international companies as easily as trading in their local markets. This is far more than a technological revolution. The potential worldwide impact of more mobile pools of capital could have far-reaching and inestimable economic benefits.

As bond markets continue the march towards greater electronic execution, there are increasing signs that bond trading venues owned by single dealers will not have much of a role in the new world.

They are falling out of favour as corporate bond market participants seek platforms to which several brokers contribute, as these venues meet the needs for best execution, provide diversity in liquidity and seek a more efficient marketplace.

Success in electronic trading. The first reason is diversity in liquidity. When it comes to finding liquidity or trading counterparties, more is always better. Multi-dealer venues build an interconnected fixed income marketplace; providing both buyside and sellside participants opportunities to access each other and form a valuable ecosystem for transactions.

The second reason is data. To maximise liquidity and minimise execution costs, market participants need to leverage the plethora of data available in the market to make more intelligent portfolio and trading decisions.

Finally, trading is a sophisticated business process for institutional investors, and therefore increasing efficiency is critical to make any business generate greater returns.