The Internet and related technologies are changing the securities business. Buzzwords such as “investor empowerment,” “democratization,” and “paradigm shift” only begin to suggest the extent to which the industry is being transformed. But if technology is the driver, regulatory change is the pit crew.
Consider a few recent examples. A couple of years ago, Congress repealed the Depression-era Glass-Steagall Act, eliminating barriers between commercial banks such as Citibank and investment firms such as Salomon Smith Barney. Later, Congress was debating whether to repeal the ban on trading single stock futures (surrogates for the underlying securities) and which set of laws – securities, commodities, or both – would apply to that area of trading.
U.S. exchanges shredded trading in fractions in favor of decimals. In the following years, the securities settlement cycle shrunk from three days to one day, dramatically reducing risk in the financial system. Eventually, a security may trade globally and continuously as firms pass their trading book from closing markets to open markets.
