Information Systems Strategy at the Toronto Stock Exchange
Lecture 2 Case Study Notes: Information Systems Strategy at the Toronto Stock Exchange The Exchange Industry
Financial markets have existed to match individuals who require capital w/ individuals who have capital to invest Prior to the advent of computers, the matching process occurred via floor trading (i.e. physical contact b/w buyers and sellers and manual exchange records processing) Successful exchanges had two key ingredients—liquidity and quality o Liquidity was the ability of a market for a stock to absorb a reasonable amount of buying and selling w/o major price changes The lower the liquidity of a given market, the greater price fluctuations due to buying and selling Price fluctuations are referred to as market impact costs o Exchanges There are 3 key customers; brokerage houses, listing companies and investors (individual and institutional) Brokerage industry provided specialists required to conduct trading activities Depending on the local regulatory environment, brokers also acted as an exchange’s competitors by internalizing orders (matching buy and sell orders in-house) and reporting trades after they occurred Listing companies look for low cost, high liquidity, high market quality and high visibility Investors look for low cost, access to high quality info and a well-regulated forum in which to conduct their activities
Major Trends
Several forces had an impact on the exchange industry including globalization, deconstruction, consolidation and institutionalization Globalization has resulted in issuing companies seeking financial choices abroad (around the world) o Advances in technology included extensive connectivity and very low communication costs Having low cost, advanced tech creates a competitive advantage against other companies
Financial markets have existed to match individuals who require capital w/ individuals who have capital to invest Prior to the advent of computers, the matching process occurred via floor trading (i.e. physical contact b/w buyers and sellers and manual exchange records processing) Successful exchanges had two key ingredients—liquidity and quality o Liquidity was the ability of a market for a stock to absorb a reasonable amount of buying and selling w/o major price changes The lower the liquidity of a given market, the greater price fluctuations due to buying and selling Price fluctuations are referred to as market impact costs o Exchanges There are 3 key customers; brokerage houses, listing companies and investors (individual and institutional) Brokerage industry provided specialists required to conduct trading activities Depending on the local regulatory environment, brokers also acted as an exchange’s competitors by internalizing orders (matching buy and sell orders in-house) and reporting trades after they occurred Listing companies look for low cost, high liquidity, high market quality and high visibility Investors look for low cost, access to high quality info and a well-regulated forum in which to conduct their activities
Major Trends
Several forces had an impact on the exchange industry including globalization, deconstruction, consolidation and institutionalization Globalization has resulted in issuing companies seeking financial choices abroad (around the world) o Advances in technology included extensive connectivity and very low communication costs Having low cost, advanced tech creates a competitive advantage against other companies
