Efficient e-financial markets for Asia

ITAsia's Hong Kong correspondent Ross Milburn asks three IT executives how the financial sector should implement e-commerce applications without throwing away their legacy systems.

April 2000 - Financial markets worldwide are competing for the attention of global investors by modernising their infrastructure and introducing faster, cheaper electronic methods of exchange and payment. In Asia, 20% of all stocks will be traded online in 2003, according to Gartner Group Dataquest.

Following Singapore's recent bold moves to initiate and support e-commerce activity in the island Republic, Hong Kong has drawn up a plan for comprehensive introduction of electronic trading for securities, futures, options and the associated settlement processes. The plan was presented in a September 1999 report by the Steering Committee on the Enhancement of the Financial Infrastructure (SCEFI), which meets under the chairman of the Securities and Futures Commission, and includes representatives of government and private financial institutions.

The SCEFI plan envisages a major new network, FinNet, to link financial institutions with banks, insurance companies, financial services and the provident funds. FinNet would connect to the Hong Kong Stock Exchange, banks, share registrars, and other financial institutions through secure gateways. Against the backdrop of this plan, ITAsia asks senior executives from three leading IT companies for their reflections on modernising securities trading.

Access to markets
The way that investors access financial markets is set to change rapidly, according to Dr. Peter Barker, who handles sales of complex trading room systems at Syntegra, the systems integration division of BT. The Hong Kong Stock Exchange's current stock dealing system, AMS/2 (Automated Order Matching & Execution System), which uses the old X.25 protocol, is being upgraded to AMS/3 to run over an IP network.

"Once you get IP, you get the ability to offer straight-through processing with the World Wide Web, while voice systems will migrate to it. A lot of bank systems already use IP. The key is to integrate these access channels," Dr. Barker says.

Mobile phones and palmtop devices will also be widely used for financial transactions, he believes. "WAP (Wireless Application Protocol) will enable simplified Web browsing on mobile phones, and the next generation will handle bandwidth of up to 2Mbps. A mobile phone user will, for example, be able to receive a price-change alert from his broker and then use it to complete buy or sell transactions. Already, over 70% of people in Hong Kong have mobile phones," Dr. Barker adds.

Java is the central solution needed to provide a diverse means of accessing e-commerce applications, according to Danny Tam, General Manager of Sun Microsystems, Hong Kong. "Financial services will be accessed from PCs, public Internet kiosks (like the ones in Japan), Palm Pilots, mobile phones, even TVs, so you will have to deliver your application on a very open platform. Java is the key technology that will allow access on demand to your application and data, even on PDAs with limited memory and CPU power," he adds.

Legacy and Internet
Says Dr. Barker: "We are consultancy-led, so we often go into a bank or broker that has a legacy system and advise how they get from where they are now to the new world of IP. Banks and other financial institutions put a lot of resources into these systems over the years and don't want to throw that effort away."

A potential obstacle to linking legacy systems to the Web is whether the financial institutions can cope with millions of potential users. "Sometimes, the internal systems themselves need to be upgraded," Dr. Barker adds. Sun Microsystems offers iPlanet, a platform and technology framework designed to enable legacy applications to 'talk' to Internet applications. "The financial sector uses legacy systems but it must 'talk' to the whole world through gateways, so the key task is to integrate systems. On the Internet, time to market is key, so iPlanet pro- vides a technology framework with which to build something around a proprietary technology quickly, as well as cost effectively," Mr. Tam explains.

According to Clive Tilbrook, Software AG's Asia Pacific Marketing Director, much IT work in financial organisations do not contribute to business performance. "Most customers devote 25-40% of their IT staff resources to working on compatibility between systems that require integration, including their own systems and those of their supply chain partners," he says. The classic solution for communications between disparate systems is EDI (Electronic Document Interchange), a "fairly low-level solution" that is expensive and complex to implement, Mr. Tilbrook says. "In the US, where traditional EDI has been used for 10 to 15 years, less than 3% of corporations use it because leased lines and support for the EDI protocol is too expensive."

XML (eXtensible Markup Language) is a better solution that enables the user to 'mark up' documents and send them electronically across the Internet. "XML is suitable for use in the Hong Kong Stock Exchange and Futures Exchange, and is cheap enough for use by small-and-medium-sized enterprises," Mr. Tilbrook adds.

EDI is relatively inflexible because it incorporates fields of fixed size (which may occasionally be too short for the user's data) and in a fixed order. Also, the EDIFACT codes used are generally terse (abbreviated) and users have to refer to the code book to use them. "Although this means XML documents may be longer than EDI ones, this matters less on today's low-cost Internet," Mr. Tilbrook says.

XML, by contrast, uses beginning and end tags (labels) for each field, which can be of any length and are generally in plain language. For example, 'Hong Kong' and 'unit price' would remain unchanged in an XML document. "Another advantage is that XML fields are all optional, so that a single electronic document can be sent to multiple trade partners, who each need only a subset of it. When their computers reach a field that is not understood, it is simply ignored. The XML code can be processed in any language, but Java is the most popular," he adds.

XML is not perfect, however. While it is being standardised by the World Wide Web Consortium, individual industries are free to implement it with variations, and so the use of non-standard tags has become a problem. In Singapore, the Article Numbering Council sees XML supplanting EDI and a committee is working on a standard for converting EDI and XML documents.

Software AG's Tamino is the only purpose-designed XML server available, Mr. Tilbrook says. "Most XML servers, such as Oracle's, insert a special layer over the operating system kernel; that [layer] may affect performance," he explains.

Database selling
A modern e-commerce technique being studied at Syntegra is database marketing, in which clients' buying and selling habits are tracked by computer in order to anticipate individuals' likely requirements. "Data mining of the Web site might determine that customers who buy Share A also buy Share C or D, and this would provide an opening for a sales contact. The offer could be made automatically using the Web, so that the system provides a low-cost sales function," Dr. Barker says.

While automatic trading is becoming more common for the retail securities market, the opposite trend is noticeable for institutional trading, Dr. Barker adds. "There are fewer traders now, but more salespersons. Forex trading rarely involves human intervention, but there is a 'chat' background feature that has proven popular. Also, the Internet paradox is that advisory skills and highly personal services cannot be totally satisfied electronically," he notes.

Sun Microsystems is focusing on the service provider market, and in April 1999 ran large seminars to promote Internet banking in Hong Kong. "We have partnered with over 20 solution providers to offer total solutions for Internet trade to even the smallest brokerage firms. A major emphasis was security and we set up a Web site called Hong Kong Security.com," Mr. Tam says.