The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

It Used To Take Three To Tango

Saturday, January 1, 2000

The man stops you mid-step and asks for your grocery list. And he’s going to charge you an additional 1 percent or so mark up, after you’re done shopping. Get used to it — he’s going to do that every time you shop at that grocery store. Coercion? Gouging? Bribery? But hey! Hold your horses. That’s exactly how many of you may feel while trading stocks and, especially, bonds. Some brokers for no value-added service are charging you a commission, an undeserved or coercive mark-up.

Some brokerage firms and brokers add value. Some don’t. The Internet is changing the way stocks are traded and soon, how bonds may be traded. Now, online brokers process over 500,000 trades daily — that’s almost one in seven trades in the US. Online traders account for about one quarter of the total trades on the NASDAQ. Electronic accounts constitute about nine million of the 70 million brokerage accounts and this number is expected to hit 25 million by 2003. Online trading is much cheaper than traditional brokerage and trading commissions are plummeting fast. Best of all, the man outside the grocery store will soon be a memory.

Cut to the Chase

Even on the stock exchange, why do we need specialists or the “jobbers” as they are called on the other side of the Atlantic? Specialists are basically matching buy and sell orders. Sometimes, yes, they do provide “liquidity” to the market by committing their firm’s capital to facilitate a trade. Looking at the “electronic, computer screen-based systems” of the Japanese futures exchange and of some European exchanges, you don’t even need a futures pit – the carnival type gathering of traders in bright colored jackets that trade commodities and other financial instruments. The Internet is making these jobs obsolete. Obviously, a number of jobs and livelihoods are dependent on these exchanges. There is a lot at stake here. There are strong lobbies trying to plug the tides of change. This process may be slowed but it cannot be stopped. The winners are going to be the end users – farmers who hedge their crops, a mortgage banker making home loans hedging her interest rate risk, an exporter eliminating his foreign exchange risk, a stock fund manager or an investor protecting his investment. The losers — the toll collectors, the man at the grocery store. The middleman who does not add value will be adrift in Cyberspace.

Share on Twitter
Share on LinkedIn
Share on facebook