Volume 15, Number 1 Article by Vineet Dhamija March, 2003
The Evolution and Future of E-broking :
This article traces the evolution of electronic stock trading, analyses its key success factors and attempts to project its future. The author, Vineet Dhamija, believes that e-broking reflects a paradigm shift resulting in greater empowerment of the client and disintermediation, endangering the existence of inefficient and high-cost service providers. He establishes that e-trading is a relatively safe and efficient trading mechanism, offers a variety of benefits to the users and brokers and is poised for significant growth in the coming decade.
The article begins with a framework, the Six ‘S’ Model, for examining the amenability of a service for e-enablement, and presents an assessment of financial services such as corporate banking, retail banking, insurance and broking. Based on this framework, the article establishes that broking, a service which does not require sophisticated skills, is standardised, has a wide geographic spread of clients and a high number of clients who use the service very frequently, and whose automatable processes account for a high proportion of costs, is highly amenable to e-enablement.
Dhamija then traces the evolution and development of e-broking in some economies, namely the US (where about half the transactions made by retail investors are done through the Internet), South Korea (with 43% of the total stock turnover conducted online) and Japan (where e-broking has been slow to pick up, but is expected to gain popularity in the near future). He analyses the similarities and divergence in the growth of the e-broking industry across these countries, presenting snapshots of leading international e-brokers to underline the significant potential of the e-broking industry. Against this backdrop, the status of e-broking in India is discussed. A very recent phenomenon in India, there are several factors that may jeopardise the growth of e-broking. These include the poor reach of the Internet, lack of suitable infrastructure, security concerns, and the preponderance of institutional investors in the market. However, certain steps could be taken to ensure the success of e-broking in India. The article suggests some measures and also explores the Global Equity Market alliance, which would utilise the potential of e-broking to the maximum possible extent.
Reprint No 03103
