Global Trends: A look at key technologies that are changing our lives
About a decade ago, technologies like Client / Server computing, Relational Data Base Management Systems (RDBMS), Graphical User Interface (GUI), On Line Transaction Processing (OLTP), Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) dominated the global scenario.
Today, innovation in each of these areas has led to a burgeoning of new products, further accelerated by the exponentially growing popularity of Internet applications. Web computing, dealing with (client) browsers and (server) search engines, is a natural extension of traditional Client / Server computing; RDBMS technology now covers Data Warehousing for rapid, organised, on-line storage and retrieval of large volumes of data; the user interface has gone beyond mere graphic presentation to include multi-media - an integration of audio, video, text and data; On Line Analytical Processing (OLAP) applications now supplement OLTP applications so that not only is transaction data processed on-line, but also can be queried for management information and decision support, in an on-line mode. Electronic Commerce today represents the convergence of e-mail, electronic publishing, EDI and EFT.
Businesses world-wide have been quick to absorb and exploit these emerging technologies, giving rise to phenomena like on-line shopping, which are completely new concepts in the history of mankind. Virtual stores and cybermalls provide a location independent, low cost distribution mechanism, as also an alternate advertising medium. The near-immediate response capability offered by these applications enable consumer products to be distributed so as to almost exactly match the pattern of consumption as it takes place. For product manufacturers and distributors, this means immediate payment on making the sale, and also, the ability to perform more accurate forecasting. In the financial services area, these technologies of the '90s have opened new avenues of opportunity in two key areas - access channels: ATMs, Phone Banking, Video Kiosks, and PC Banking; and payment alternatives: smart cards, electronic cash, etc.
We may thus conclude from the experience of advanced markets, that recent developments in computing and communications technology have the potential to: expand a distribution network, reduce order processing cycle time, reduce transaction costs, empower customers through capabilities like self-service and mass customisation, improve customer service response time, and reduce cash collection time.
Indian Capital Markets: The emerging scenario and its challenges
Today's liberalised Indian business environment is characterised by the opening-up of markets and the entry of global players. Among other things, this has also resulted in increased availability (and affordability) of contemporary technologies and hence an improvement in the Indian operating infrastructure (especially in the area of communications). These changes have led to new products, new markets and new customers. In this context two things stand out unmistakably - first, customers will demand more and will exercise their right of choice if dissatisfied, second, only the fittest organisations will survive the onslaught of competition.
The Indian securities industry has witnessed a paradigm shift in recent years. From the age-old scenario of open outcry trading and paper-based settlement, the Indian markets have switched to on-line trading and dematerialised book entry settlement and transfer. This has resulted in transparency, volumes, speed of processing, and (some) reduction in transaction costs. The intermediation business has increased in complexity, by way of having to deal with membership of multiple institutions, evolving business rules and compliance requirements, and increasing sophistication of customer needs. Also, competition among intermediaries has increased, thanks to foreign players, domestic corporates and institutions, and the new breed of professionally owned firms. Similarly, the business of providing and maintaining efficient, fair and orderly markets (facilities for trading, clearing and settlement) has been impacted, in as much as market authorities are now able to introduce reforms faster (e.g., rolling settlement, stock lending, derivatives).
In order to survive and thrive in this fast changing scenario, intermediaries need to: become more sensitive to customer issues, find innovative ways of mobilising funds, institutionalise best practices and focus on financial strengthening and on retraining / redeployment of skills. Market participants must have a clear focus and strategic direction, align their organisation structure with business strategy, and transform business processes so as to deliver innovative products and services to target customers, provide better service at lower cost, handle higher volumes more efficiently, and effectively manage business risks.
Technology has a key role to play in each of the above areas. From a strategic perspective, technology can help in: innovative product design and delivery mechanism, setting up distribution networks to reach target customers, and in monitoring and controlling performance. From an operational perspective, technology can improve efficiency and productivity, reduce the cost per transaction and support effective risk management systems. However such strategic and/or operational deployment of technology must satisfy certain imperatives - it must be reliable (based on stable and proven solutions), price / performant (using powerful yet inexpensive products), scaleable (easily upgradable configurations), secure (provide for adequate controls to be built into and around the application systems), open (support multi-location operations and multi-system linkages), and flexible (enable process re-engineering in a changing environment).
Application Domains: Key areas for deployment of contemporary technologies
As far as the Indian brokerage business is concerned, the application areas for emerging technologies are:
It is reasonable to expect that brokerage businesses (in general, securities intermediation businesses), who plan to be successful in the future (after having withstood the impending shake-out), would invest in significant technology upgrades over the next 2 to 3 years in the application areas listed above.
As an industry, it is essential for us to work in a concerted manner towards meeting international standards, including, for instance, full compliance of all 9 recommendations made by G30. Over the next few years, while intermediaries upgrade their operating infrastructure, it is expected that providers of market facilities (stock exchanges, clearinghouses, depositories), as also regulators of the market, initiate programmes aimed at infrastructure upgrade, process streamlining and market reforms (comprehensive regulatory framework, effective enforcement machinery). In the context of infrastructure upgrade, it would be useful to consider a nationwide networking and communications platform - something like, say, StockNet, which would be to the securities industry what BankNet, SailNet, CoalNet, etc. are to those respective industries. Emerging web-based technologies would simplify this task, just as impending upgradation of telecommunications would support it. In any case (with or without StockNet), the following need to be built into our national market:
Conclusion: Towards maturity and sophistication ...
To conclude, let us quickly review some characteristics of mature markets:
Technology plays a key role in the evolution of markets towards maturity and sophistication. However, technology needs to meet certain criteria in order to prove itself as an enabler in meeting business objectives. Correctly deployed, technology enables participants to address: innovative product design / delivery mechanisms; safe, low cost distribution of products / services; quick and effective customer response; information sharing among participants (be it for dissemination of company and market information or for transaction data interchange); and better control over players. Over the next few years, the Indian securities market will witness a considerable increase in the investment in technology aimed at a variety of business applications, ranging from operational and reporting domains, and covering strategic use as well. The industry as a whole must concentrate on how to best use technology to improve quality of products and services, reduce costs and reduce risks, to the issuer, the intermediary, and, above all, the investor.