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12:15 PM
Eric Blackwell, Consultant, IBM Global Services
Eric Blackwell, Consultant, IBM Global Services
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Wireless Securities Trading in Europe - The Future is...Yesterday

Europe trails United States by two years in new technology uptake in the marketplace.

An often-heard rule of thumb is that Europe trails the United States by about two years in terms of new technology uptake in the marketplace. This point can be debated, but one area where Europe is clearly ahead of the United States is the wireless industry. The uniform adoption years ago of the GSM standard has enabled manufacturers and consumers alike to prosper and benefit, very much unlike the cacophony of competing technologies pockmarking the US landscape.

Because GSM is a digital standard, a GSM cellphone is already honed to move data, and the Wireless Application Protocol (WAP) provides wireless devices with a bandwidth friendly alternative to HTTP. Implementing WAP requires placement of a gateway server as the interface to existing internet infrastructure. Consequently, the wireless part of the architecture for securities trading is in place.

Even thorny security issues are being resolved. WAP version 1.1 supports WTSL which provides a 128-bit encrypted session from the end user to the WAP Gateway, and future plans include pervasive encryption to the authentication layer. As WAP enabled cell-phones replace older models and 3G technologies like UMTS bring greater bandwidth (and ironically more HTTP usage!), the robustness and appeal of wireless trading will also continue to improve.

Once an order has reached the application layer of the trading architecture, and regardless of the e-channel, the quality of the client experience is limited largely by the bank or brokerages ability to provide relevant products and services in a user-friendly manner. For exchange-traded securities, the advances made by third- party Order Routing Systems (ORS's) like Reuters IntertradeDirect and standards groups like the GSTPA (see www.axion4.com) are indicative of where retail securities trading is headed.

Furthermore, European banks, their IT departments, and their clients share the intertwined history of Europe which has left them more adept and comfortable with issues like foreign exchange, differing regulatory environments, and foreign languages which usually accompany the trading of non-local securities.

In a word, the technical possibility to trade stocks via cell-phone is yesterday's news in Europe. Credit Suisse's www.youtrade.com and comdirect bank's www.comdirect.de are two good examples of the theory put into practice.

The picture does have a small cloud though.

Europeans do not have a rich tradition of stock ownership. Stock market crashes, devaluations, hyper-inflation, small illiquid markets, apparent cases of manipulation, interlocking corporate boards, heavy regulation, and a variety of other reasons have created a culture that views stocks as a gambler's and insider's game. The favorite investment by far is real estate, but times are changing.

It is conjecture, but at least four factors are likely candidates as motors for increased securities investment:

1. New wealth and wealth transfer - As in the US, new wealth creation and a huge generational transfer of wealth is occurring in Europe. The post-reconstruction generation will likely demand that their money work harder than the few percent of interest that their parents received on savings accounts2. Bank innovation - Banks competing within a slowly deregulating EU will have to provide better products, better service and better information across a variety of channels in order to keep their clients. 3. Regulatory transparency - Overcoming some of the historical baggage and unfair reputation that stock exchanges have acquired will require improving and harmonising regulatory structures to ensure that ,outsiders" have fair and timely access to all relevant information about publicly traded companies. 4. Liquid Money Markets - Introduction of the Euro is creating a capital market with enough depth to support a liquid money market. Asset managers that offer money market funds in Euro combined with universal banks that offer automatic sweeps and redemptions in and out of a money market fund versus a securities trading account, debit card or whatever, will make inroads versus the humble savings account. Cannabalism will occur, but market leadership can more than offset this impact with new client acquisitions..

In conclusion, it seems fair to say that wireless securities trading is already off the starting block in Europe and the cultural changes that have limited retail securities trading in the past are starting to crumble. If European financial institutions rise to the occasion, then both they and their clients stand to win.

Eric Blackwell is a business consultant with IBM Global Services. He has more than 10 years experience in the financial services industry and has helped major financial institutions in Europe and the United States develop Internet brokerage solutions. He is currently based in Vienna, Austria.

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