A CRITICAL EXAMINATION OF THE ADVANTAGES AND DISADVANTAGES OFE - STOCK EXCHANGE TRANSACTIONS, AND THE EXTEND TO WHICH THEY PERTAIN TO THE GREEK BANKS
Despina C. Anargiridou
Accounting and Finance Department
University of Macedonia
Egnatias 156 Thessaloniki
GREECE
ProF. DR. Demetrios L. Papadopoulos
Accounting and Finance Department
University of Macedonia
Egnatias 156 Thessaloniki
GREECE
Abstract: - The "online stock exchange transactions" concern the companies, which let customers carry out their transactions via the Internet without intermediates and with low charges. The purpose of this paper is twofold, first to provide a critical examination of all the advantages and disadvantages of the online stock exchange transactions. Second, to describe the extend to which these advantages and disadvantages pertain to the Greek banks which provide e- stock exchange transactions. For this scope, in our analysis we have considered all the online stock exchange transactions that are already provided by the major Greek Banks.
Key Words: - security, e-stock markets, e- stock exchange transactions, online stock exchange transactions
1 Introduction and the Purpose of the paper
New technologies (mobile phones, wearable computers) are available for interacting with services of various kinds everywhere and simultaneously with other activities[1]. The progresses of the technology and the information advent as well as the Internet have considerably affected the way the financial transactions are carried out [2]. The stock exchange transactions are held more easily, cost less, and their main advantage is that the customers and the financial products salesmen have direct access in information. The intermediates are done away with and the salesmen contact directly with the purchasers. This process is known as "intervence" .
The "intervence" term concerns the international trend to stop the monopoly of the Banks for providing financial services and the entrance of a new type of financial mechanisms for providing and collecting capital [3]. Mainly, it concerns the creation of a direct relation between lenders / borrowers, purchasers / salesmen, financial services with the bypass of the formerly master role of the banks [4].
It is perhaps the most important development, which gave a new role to the banking system the last two decades. More precisely the following facts have been observed: 1) Reduction of the deposits accounts. 2) The governments start to gather money direct from the investors. 3) Non-banking organizations started to provide banking services. 4) Directly web dealing of titles, stocks, and interest-rates without the interference of the financial system. 5) Increase of the demand for products and services that can be covered from certain organizations.
The purpose of this paper, within this new role of the banking system, is twofold: First to provide a critical examination of all the advantages and disadvantages of the online stock exchange transactions. The investments via the Internet concern investors that will participate in a changeable market, with few or no means of help. Without intermediates, the e- stock exchange transactions let the investors to influence more the stock prices, but at the same time cause a lack of liquidity that the invertors are not willing to handle. Even though a lot of investors consider the e- stock exchange transactions powerful and promising, there are many others that would prefer to have the safety of the traditional investments companies, which means not to have the reduction of costs from the lack of experts. An analysis of the online stock exchange transactions: their advantages, disadvantages, and implementation difficulties are given in the second part of the paper.
Second, to investigate the extend to which the advantages and disadvantages of the online stock exchange transactions pertain to the Greek Internet banks which provide this type of transactions. In a previous paper of ours [5] we have investigate the advantages and disadvantages of e-banking and the extend to which they pertain to the Greek Banks. The reason for this investigation is that even though during the last years the Internet users in Greece have been multiplied, the online stock exchange transactions do not appear to have passed in the Greek conscience mainly due to the insufficient information about their possibilities. Our investigation covers the online stock transaction services offered by the Egnatia and the Alpha Bank, which are the Greek banks that first offered this type of services. These issues that are related to the Greek banks offering online stock exchange transactions are discussed in the third part of this paper.
The last part (fourth) of paper presents our conclusions about the effects of the e – stock investments and shows the direction that should take the further research of the issues related to the e- stock transactions.
2 Electronic Stock Exchange Transactions
2.1 Introductive comments
The "online Stock Exchange transactions" concern the financial companies, which let their customers carry out their transactions via the Internet with low charges. A lot of companies provide on-line connection to stock markets and let their customers to control completely their portfolios and directly give their orders for buying or selling stocks.
Other Internet services are also available. Many web sites inform customers about stock prices during or after the end of a financial session or even get informed about the monthly or annually movements of the stocks. Moreover, screen savers have been made, which continually present stock prices or the basic stock indexes. The financial companies used to inform their customers via fax. Nowadays, fax has been replaced by e-mail. In addition, Internet can replace completely a financial newspaper as it provides more financial information and much earlier than any newspaper.
The access to a lot of stock markets and the handling of the multiple exchange parities are some of the important factors of the e- stock exchange transactions [6]. But the real power of the Internet to change the way individuals invest and save them even more money lies in the creation of automated, centralized Internet stock market. Such exchanges would eliminate professional intermediaries, and the premiums they charge for reducing risk and increasing liquidity. This in turn would attract more investors and further decrease trading costs.
Next, we will discuss how the e-stock markets run and the role of the on-line stockbrokers. We will also refer to the advantages of the e- stock exchange transactions and finally we will point out all the disadvantages and the difficulties of the online stock exchange transactions.
2.2 The e-stock market’s operation
The electronic communication networks (ECNs) handle Stock Exchange transactions apart from the traditional Stock Exchanges and they correspond to the ¼ of all the transactions of the Nasdaq stock market. From a technological/practical view, the only thing that somebody needs in order to be able to use the ECNs, is the activation of an Internet account and the subscription to an e-Finance provider, if he wishes to get special advisory services.
The whole process is very simple. An investor receives an Email from the "online stockbroker" who activated his account and after that he has the chance to participate in the initial public offering of a Company, using the Internet, and without the intervention or the help of any traditional stockbroker. When the shareholders decide to sell, they can do so at an Internet stock market. This gives them the opportunity to negotiate electronically their stocks at any price.
The e-stock market is an electronic bulletin board full of orders. The customers can navigate through lists of orders. If they want to sell stocks, the investors place a limit order hoping that somebody will be willing to contact the transaction. On the other hand, if they want to buy stocks, they contact the transaction clicking the most satisfactory given order. If two orders both match in price and in quantity, the system will automatically record the transaction and it will transfer the stocks.
The reduction of the market - makers, who are necessary in a traditional stock market to set the spread, based on the prices that they would buy or sell, helps the investors to gain money. This is the main aim of the e – transaction system. However, the investments in an online stock market include high risk and they require personal research for the company whose stocks will be bought.
2.3 The Advantages of the e – stock markets and of the e – stock exchange transactions
The use of the Internet for financial services did not just offer a faster communication and has not just limited certain restrictive factors, but also created new conditions for the transactions. As regards to a research conducted by Alan Majer [7], when people asked whether an Internet stock exchange would have any advantage over a conventional exchange 88.1% of respondents replied that it would. Not a single respondent said that Internet stock exchanges wouldn't have any advantages over a conventional exchange; the remaining 11.9% were undecided. Benefits listed were primarily the lower costs and the access to a broader market. Ease of marketing and information provision were also mentioned as benefits. Next, we will try to refer the most important ones.
First of all, less time is needed for the implementation of the transactions at an e-stock market than at a traditional one. Moreover, the e-transactions cost a lot less than the traditional ones, because the role of the market makers is limited.
Anotherimportant advantage is the fact that the orders are given in real time, so both the price and the amount of stocks can be altered, or new orders can be given very easily and immediately.
Besides, the e- stock markets offer great facility to its customers referring to their operational hours. Contrary to the traditional stock markets, the e-stock markets never close. They are available 24 hours a day, 7 days per week, 365 days per year[8]. Internet is available all the time, so there is no limitation for their continuous operation.
In addition, the e-stock markets perfectly provide the possibility of anonymous transactions. This fact is very important for the big investors. The only necessary data are a deposit account, in order to debit and credit it in a case of buying or selling stocks correspondingly, and finance account for the handling of the stocks.
Moreover the web stock markets are only a mouse click away. That means, if somebody is away from his country and wants to be informed about his stock investments or even wants to make an e-transaction, the only thing that he needs to do is to make a connection with his e-stock market.
Besides, the e- stock exchange transactions are also effective. Nowadays, a lot of web pages offer ultramodern tools that enable customers to transfer funds between accounts, to keep up with their personal portfolios and to get a warning if the stocks reach a desirable price.
In addition a lot of web pages provide friendly computer programs, accountant leaves, and other applications as the Quicken, the QuickBooks and the Microsoft Money, that allow investors to get individualized analyses and advisory services, to download information directly into their personal finance software, which not long ago was possible only after hard work and it needed a lot of money.
There are also some important advantages for the enterprises that negotiate their stocks via an e-stock market. The broader market is a factor that enables them to achieve better prices for their stocks. Moreover, the marketing of the company is much easier and less expensive as they can easily provide pieces of information about their company to the shareholders.
2.4 Difficulties and Disadvantages of the Online Stock Exchange Transactions
The online stock exchange transactions, despite their great advantages, have not gain the confidence of businessmen basically due to the fact that many people still consider the security they offer very limited. At a traditional stock market the investors would ask the stockbrokers what precisely they want to buy or sell. However, at an e-stock market there are no intermediaries, so the investors would probably feel less safe during their transactions. Moreover, in case the electrical power is cut off, it would weaken even more the confidence of the investors.
In addition, when the customers make an e-transaction they are not sure whether it was rightly completed and if they press the transaction button once or twice. So, in order to assure their e- stock exchange transactions, they are always supposed to print out a proof of them and keep it at their investment files until the transaction is presented at their personal web page and/or at his banking account movements. As a result the most important obstacle for the evolution of the e – stock exchange transactions is learning to trust them. Anyway, the security that is now offered is integrated and they could very difficulty get forced [9].
Besides, the e-stock markets encounter the lack of liquidity. When an investor wants to buy at an e-stock market, he places a limit order hoping that somebody will be willing to contact the transaction. However, if he can’t find one, then no transaction is executed. Not only does not the investor have the possibility to liquidate, but also in the long run the imbalances between order and demand can cause important changes of the stock prices and won’t allow their stabilization. At the traditional markets, the market makers, who give prices and orders when the existing ones cannot help liquidity, or when they do not suit, solve the liquidity problem.
Moreover, we have to point out that when somebody uses the e - stock exchange transactions for the first time, he will probably need a great deal of time to accomplish all the necessary steps. Particularly, it is obvious that an ID is necessary as long as the filling of a form at a bank/company branch in order to register at an Internet bank program. Besides, if a couple want to view and manage their stock investments via the Internet, it is supposed that the one of them would grant to the other a permanent power of attorney, before the bank will present together the investments of both of them.
There are a lot of people that lack the basic web skills or they simply do not have access to a PC (or the Internet) at work or at home. They can’t understand that learning to surf the web is not like learning a new language and that they can anytime find help at many computer magazines which are frequently published to help the new web user. These people are not informed about the fact that PC's can come very cheap today and Internet access is available to all those with a telephone line and that there are many Internet access packages available to suit anyone’s surfing requirements.
The computer overloading of the Internet stock markets have made the connections slow and ineffective, particularly if these took place via telephone lines. So, some people with 56k modems may be put off by these 'slow' speeds. A positive factor is the introduction of broadband, which will give people an incentive to use Internet stock exchange transactions, in addition to using the Internet a lot more in general.
Another great disadvantage of the online stock exchange transactions is that the banks that provide them have web sites, which are very difficult to navigate, especially for the first time. A new customer needs to dedicate enough time in order to read the handbooks; so as to be comfortable at his "virtual travels". The fact that the web pages often change is another disadvantage. Even the most profitable banks periodically upgrade their web programs, adding new features at extraordinary points. In a lot of cases, the user is compelled even to re-enter information about his account.
The investors who use the e – stock exchange transactions lack of financial knowledge and experience in the stock exchange transactions. They risk to not completely understanding the rules for the various types of the e- stock exchange transactions.
On the other hand, there maybe exist some investors who want to take advantage of the capabilities of the e-stock markets. Before the beginning of a session, they give an order to buy, without truly wish to, they invest the corresponding capital, and just after the beginning of the session they liquidate, profiting the relative rise of the stock price. Those investments are known as "virtual" investments or "one day’s transactions" [10].
It is fair to say that the banks that provide e- stock exchange transactions did not take into consideration what their customers really wanted and they failed to cope with their promises for facility and comfort to customers. In addition, they did not draw the new services seriously and with responsibility and they could not offer a complete range of products and services.