Securities Industry News ^TM

GUEST COMMENT

Globalization’s Trickle-Down Effect

BY MICHAEL RICCI

Over the last few decades, we have seen significant change in the securities industry, much of it benefiting the retail investor: better access to execution venues, market data and analytics, more products, lower prices. But this is only the beginning. There are major changes on the horizon that have the potential to make or break all players, big and small. The next wave is going to be far more radical and will completely change the way retail customers and investors interact with financial firms. This wave will be driven by innovation and changing demographics resulting from globalization, and will empower the retail investor.

Most of us don’t spend enough time thinking about the future, especially over the longer term. Let’s change that for the moment and look out ten years. Imagine that the present trends of globalization, innovation and technology continue unabated. The consequent “flattening” of the world has continued. Demographics have changed. The middle classes of today’s developing countries have become larger and consume more than today’s established economies. They have become the most sought-after customers.

Globalization is a catalyst for change. Over the next decade, the new middle classes will demand more access to global capital markets. We already see today that closer economic ties are changing the way distant countries interact. Capital markets around the world are already beginning to move in step, like a single global market. In the future, they will be directly accessible to retail investors anywhere in the world. Nascent middle classes will make significant investments outside their borders, while more sophisticated investors will look to hedge the new risks of being part of a truly global workforce. This will require access to foreign capital markets and will likely lead to the rise of new types of derivatives designed to fill this need.

New ways of doing business will develop to satisfy the needs of these new investors. The pace of change will quicken as emerging markets serve as catalysts for change. They have much less friction and overhead. Global firms will vie for a piece of the pie in these markets. Those that succeed will bring back new techniques to their home markets.

lead the way—technologies we already see today. They will evolve together, and so are somewhat interdependent. As critical mass is achieved, change will accelerate. Without going into too much detail, let’s look at the most important areas.

The Web will evolve into a Semantic Web, able to understand context and meaning and serve as a sort of all-purpose middle-ware. This will be based on a common framework of standards that allows data to be shared and reused across applications, enterprises and community boundaries. We see service-oriented architecture being used today in much the same way. The Semantic Web will solve the compatibility problems

of today and will allow disparate third-party components to be incorporated “on the fly” into what we today would call applications. However, on-the-fly applications might use different components each time they are assembled, allowing them to be very tailored to different situations

We will see the rise of intelligent software
agents that make and execute decisions on be-
half of their owners. These programs will run
continuously, be capable of learning, and so will
Michael Ricci become trusted agents, allowing owners to del-
egate decisionmaking with confidence. Agents
will be able to monitor and analyze large amounts of data quick-
ly, enabling rapid response to changing market conditions.
Utility computing is another important technology that will
lead to dramatic change and investor empowerment. Evolving
from today’s grid technology, utility computing will provide re-
mote computing capability to investors and their agents via the
Web, to be used (and paid for) on an as-needed basis. This will
allow agents residing on lightweight mobile devices to run com-
plex models and compute-intensive programs using the compo-
nents and data available on the Web. As the technology sup-
porting complex models and analytics gets better, models will be-
come better at analyzing soft, qualitative data, which is growing
exponentially and is available to all on the Internet.
Continued on page 7

VOLUME XIX, NUMBER 16

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Technologies to Watch Although globalization and innovation will drive this change, technology will serve as the enabler. Several key technologies will

VP, BUSINESS TECHNOLOGY GROUP

DAVID GREENOUGH......................(212) 803-6575

Michael Ricci is a New York-based member of the banking and capital markets group of Infosys Technologies.

How Far Online Investing Has Come

BY MICHAEL ELLISON

It was 1997. Florida beat Cleveland in the World Series, Harry Potter was not yet a household name and Y2K was barely a gleam in programmers’ eyes. That was also the year my firm, Corporate Insight, began tracking the online brokerage world with the e-Monitor service. A look back at some of the old reports shows just how far the industry has come in ten years. Not only has the roster of players changed, but the online capabilities have mushroomed into Web sites that are true trading and investing workstations and customer service channels.

In 1997, the industry as a whole was just getting its feet wet in creating a presence online, where customers could go 24 hours a day to check their account balance and place a stock

 

Michael Ellison is EVP of New York-based financial services research and benchmarking firm Corporate Insight.

or mutual fund trade. In the rush to keep up with the competition and demonstrate their cutting-edge technology, many firms unveiled retail brokerage sites that were burdened by garish color combinations, awkward adjustable frames and confusing navigation. Streaming quotes were nonexistent in the retail market and, more important, few if any firms gave customers access to comprehensive real-time account and market information that could influence their decision about whether or not to make a trade.

In the past ten years, retail financial services firms have come a long way in improving the customer experience and have made some critical improvements to their Web sites, specifically around the aspects of design and functionality. Some examples:

• Real-time information access. The average retail brokerage site now provides unlimited, real-time quotes and account bal-

Continued on page 13

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