The impact of the Internet on financial markets By Nicholas Economides

Technology always had an impact on financial markets. Often, as in the case of the telegraph, it was the use of new technology in the financial realm that necessitated the installation of the new network. Moreover, frequently, the introduction of new technology had tremendous and sometimes unexpected effects on the structure of financial markets. For example, many historians explain the eventual primacy of the New York Stock Exchange over the Philadelphia Stock Exchange on the liquidity New York attracted from orders collected over the telegraph. In the absence of the telegraph, both exchanges could survive as equals. But once the telegraph was installed, it led to the supremacy of one of the two. In another example, in recent years, another technological change, the availability of mathematical formulas for the pricing of options, spurred the mushrooming of the derivatives markets. Thus, a new global network is expected to have an impact on financial markets. In fact, the Internet, now in its eighth year as a commercial network, already has had an impact, and is expected to have a truly transforming influence on financial markets as it matures. Definitions The Internet is a multi-purpose, multi-point digital interactive worldwide telecommunications network. By its nature, the Internet facilitates multi-point information flows and all the processes that are based on information flows. Financial intermediation and financial exchanges are based on the exchange of information. In fact, at present, a transaction of exchange of any financial instruments, including cash, equities, bonds, and their derivatives, is just a recording of altered digital information.