Online-brokerage Transforming markets from professional to retail trading Christof Weinhardt, Peter Gomber, Carsten Holtmann Information Systems, Justus-Liebig-University of Giessen Licher Strasse 70, D-35394 Giessen, Germany {Christof.Weinhardt|Peter.Gomber|Carsten.V.Holtmann}@wirtschaft.uni-giessen.de Abstract In this paper, we discuss different concepts for transforming professional trading mechanisms for the increasing market of private investors. Different perspectives of this fundamental change in capital markets are discussed. The driver of these changes is IT: technological progress provides new ways for private investors to participate actively in the capital markets in order to take advantage – and risk – in the area, where traditionally only professionals could realize their chances. Starting from these observations, one of the most important success factors for Online-brokers is discussed, namely that of the integration of the various phases within the “market transaction process“. Some already existing concepts in this area – going along with new forms of intermediation – are evaluated on the basis of the requirements of the different groups mentioned above. Beyond that, the integration level within the market processes serves as a clear framework for further development of IT support of trading activities in Online- brokerage. The concept of an Internet based electronic trading system is presented as a promising way to transform professional trading activities to the needs of private investors in the future. 1 I. INTRODUCTION A. Development of securities trading In the last couple of years the importance of securities trading for private investors (for a delimitation between private and institutional investors see [1]) has increased enormously. There are different factors being responsible for the change in trading attitudes of private investors: On the one hand, the generation of the young and wealthy investors enters the capital markets with a need for personal old-age pension planing etc.; on the other hand – and that 1 This work is part of the project ‘automation of off-exchange trading’ supported by DFG under contract We 1436/3-1. should be focussed here – there is a rapid development of IT, namely that of the Internet, not only extending the trading volumes by simplifying the way to reach the markets for private investors, but also allowing and enforcing new forms of participating in these markets and of intermediation among these participants. Due to the increased technical skills and financial expertise of private investors, this class of Online-banking customers is prepared to apply new trading technologies for their own asset management. 2 Financial Markets professional investors yesterday today/ tomorrow 1. products 2. matter of the market entrance 3. market design private investors Fig. 1: Development of financial markets. With the increasing importance of these investors, the necessity to satisfy their needs with respect to the products, the manner of market entrance, and, therefore, the market design itself rises. 3 2 It should be marked, that not all of these private investors will want to spend their time and build up skills for investing their money by themselves and, therefore, will continue to need support by intermediaries. 3 While the product design mostly is attending to pure financial questions, both other mentioned aspects (market entrance, market design) do have a strong relation to information systems.