81. Internet/ Electronic trading (etrading) as a virtual market place.

Electronic trading, sometimes called etrading, is a method of trading securities (such as stocks, and bonds), foreign exchange or financial derivatives electronically. Information technology is used to bring together buyers and sellers through an electronic trading platform and network to create virtual market places such as NASDAQ, NYSE Arca andGlobex which are also known as electronic communication networks (ECNs). Electronic trading is rapidly replacing human trading in global securities markets.

82. What do you know about electronic communication networks (ecNs), such as nasdaq, nyse Arca and Globex?

Electronic trading, sometimes called etrading, is a method of trading securities (such as stocks, and bonds), foreign exchange or financial derivatives electronically. Information technology is used to bring together buyers and sellers through an electronic trading platform and network to create virtual market places such as NASDAQ, NYSE Arca and Globex which are also known as electronic communication networks (ECNs). Electronic trading is rapidly replacing human trading in global securities markets.

Electronic trading is in contrast to older floor trading and phone trading and has a number of advantages, but glitches and cancelled trades do still occur.

An ECN attempts to eliminate the third party’s role in executing orders entered by an exchange market maker or an over-the-counter market maker, and permits such orders to be entirely or partly executed. Orders placed through ECNs are usually limit orders.

ECNs display the best available bid and ask quotes from multiple market participants, then automatically match and execute orders. They not only facilitate trading on major exchanges during market hours, they are also used for after-hours trading and foreign currency trading. ECNs allow for automated trading, passive order matching and speedy execution. Some ECNs are designed to serve institutional investors, while others are designed to serve retail investors.

Some of the different ECNs include Instinet, SelectNet and NYSE Arca. Instinet was the first ECN (1969), and it is used by small brokerages and for transactions between institutions. It is widely used by market makers for Nasdaq trades, but individuals and small firms can use it, too. SelectNet is used primarily by market makers, but it doesn’t require immediate order execution and it helps investors trade with specific market makers. NYSE Arca grew out of the merge between the New York Stock Exchange and Archipelago, an early ECN (1996). It facilitates electronic stock trading on major U.S. exchanges like the NYSE and Nasdaq.

83. What do you think about future development of electronic and human trading in global securities markets?

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.

The explosive growth of Electronic Communications Networks (ECNs)– computerized venues for trading securities–has forced the New York Stock Exchange and NASDAQ to alter their visions of the future and has raised fundamental questions about how securities markets should be structured and regulated.

The widespread adoption of information and communication technologies has been recognised as critical to the development of new international financial systems. Across a number of sectors, such as international insurance markets and stock exchanges, electronic trading infrastructures facilitate functional integration and interdependence across markets in a global economy. This has affected market structures and enabled the creation of new electronic markets.

The rise of electronic trading has been fuelled on one level by a drive to reduce transaction costs, and create a more competitive business environment.

The increase of electronic trading has had some important implications:

• Reduced cost of transactions – By automating as much of the process as possible (often referred to as "straight-through processing" or STP), costs are brought down.

• Greater liquidity – electronic systems make it easier to allow different companies to trade with one another, no matter where they are located. This leads to greater liquidity (i.e. there are more buyers and sellers) which increases the efficiency of the markets.

• Greater competition – While electronic trading hasn't necessarily lowered the cost of entry to the financial services industry, it has removed barriers within the industry and had a globalisation-style competition effect.

• Increased transparency – Electronic trading has meant that the markets are less opaque. It's easier to find out the price of securities when that information is flowing around the world electronically.

• Tighter spreads – The "spread" on an instrument is the difference between the best buying and selling prices being quoted; it represents the profit being made by the market makers. The increased liquidity, competition and transparency means that spreads have tightened, especially for commoditised, exchange-traded instruments.

For retail investors, financial services on the web offer great benefits. The primary benefit is the reduced cost of transactions for all concerned as well as the ease and the convenience.