Effect of Network Relations on the Adoption of Electronic Trading Systems

Information systems can serve as intermediaries between the buyers and the sellers in a market, creating an “electronic marketplace” that lowers the buyers’ cost to acquire information about sellers’ prices and product offerings. Although electronic trading systems provide potential to create an effi cient market structure, we witness that a $45 trillion fi xed-income market still makes little use of these systems. Low penetration of electronic trading systems in the marketplace is at odds with the existing information technology research doctrine. The reason is that the creation of effi cient market structure through an electronic marketplace is based on macro-level interfi rm relationships that do not take into account the recurrent micro-level, interpersonal 09 montazemi.indd 233 6/14/2008 3:47:10 PM 234 MONTAZEMI, SIAM, AND ESFAHANIPOUR interaction among the market actors. Our empirical investigation, based on face-toface interviews with 90 fi xed-income senior managers and traders from 25 fi nancial institutions, provides a unique insight into the social capital based on social networks of interpersonal relationships in the fi xed-income market. Our research fi ndings show that the market structure of embedded interpersonal ties enables participants to take advantage of information asymmetry for profi t taking. As a result, imposition of solely electronic trading systems on the present fi xed-income market structure is at odds with the present interfi rm market norms and business processes enacted for large transactions among market makers and institutional investors.