Present and the Future of Online Securities Trading
By Jung Yong-sun
Assistant Governor, Financial Supervisory Service
The International Telecommunication Union recently adopted WiBro technology _ a mobile wireless Internet broadband developed first in Korea _ as a third-generation international standard. This is welcome news, and the acceptance of WiBro technology as a global standard should bolster Korea's standing as a global IT leader.
Korea's IT innovations have brought real benefits to businesses and industries. The benefits are particularly striking in the financial services industry, which now takes advantage of advances in IT to provide innovative, customer-friendly services and develop new financial products and services. The latest trend is to combine IT and finance to provide mobile financial services, which are sure to accelerate what some call the digitalization of financial services. As a result, we may soon see truly ubiquitous access to financial services round the clock using WiBro technology.
Securities companies in Korea have also been developing electronic trading platforms based on IT innovations. It was only ten years ago when online trading known as Home Trading System (HTS) became widely available. HTS became so popular among traders and investors because of low transaction cost and ease of use that, by March this year, the number of securities companies providing HTS reached 30. Moreover, trading conducted through HTS and mobile services totaled 1,243 trillion won by the end of fiscal 2006, about 64 percent of 1,942 trillion won in securities trading. There appears to be no doubt now that electronic trading is here to stay as the dominant method of trading stocks.
With financial globalization picking up the pace and foreign investors' optimism about the future growth prospect of Korea's securities markets getting stronger, demand for direct market access (DMA) that enables investors overseas to place orders directly through electronic trading systems akin to HTS has grown as well. As a way to cope with several thorny cross-border regulatory and investor protection issues that DMA raised, the Financial Supervisory Service issued in May 2003 DMA guidelines that limited services to qualified overseas investors while authorizing securities companies under FSS oversight to handle DMA trading.
Several branches of foreign securities companies began to offer DMA services in October 2003. Since then, thanks to low cost and fast trading, the number of traders and investors who rely on DMA services, in particular foreign institutional investors, has steadily grown. Steps were also taken during this period to fine-tune securities regulations and improve the trading systems. In a bid to further encourage the participation of investors overseas in the Korean market, the FSS also reaffirmed the principle of flexible and accommodative application of the DMA guidelines and reiterated its commitment to ensuring smooth and disruption-free trading through DMA services. This will promote more vigorous market activities and contribute to the goal of developing Korea into a major financial hub.
IT continues to evolve and advance at a rapid pace. Looking ahead, many expect securities companies to aggressively exploit advances in IT and continually upgrade electronic trading services to offer better, faster and improved customer services. But at the same time the increasing reliance on electronic platforms for securities trading challenges both the securities industry and the regulators to provide effective protection on customer and transaction information as well as systems integrity.
Electronic securities trading is one of the key topics to be discussed at the Asia Pacific Regional Committee meeting that the FSS will host on November 28 in Seoul with the International Organization of Securities Commissions. We very much hope that it will be a unique opportunity for countries in the Asia-Pacific region to share experiences with electronic securities trading and come up with new ways to facilitate cross-border securities trading.