Information technology and securities market

This paper examines the use of information technology (IT) in the financial securities market. These markets have seen a proliferation of IT applications in the past decade, and as a result the very structure and nature of competition in the industry has changed. Various regulatory agencies are attempting to keep up with this progression and ensure fair and efficient markets. One of the directives of the Securities and Exchange Commission (SEC) was for a National Market System (NMS) to overcome the problems of fragmentation. Although a true NMS does not exist, huge gains have been made towards it, however, it is unlikely to become the dominant system. An outgrowth of IT use and the NMS directive has been a movement towards fully automated exchanges. These efforts have not met with much success as the existing automated exchanges are mainly small and experimental. A second outgrowth of the NMS is program trading. Pure in its intention, this application has since grown beyond control and was found to be responsible for much of the large decline in.stock prices in the October 1987 market crash. Limits on the use of program trades are appearing daily, and their future seems limited at best.