Innovative Financial Technologies in the Security
Exchange
KHVOSTENKO Vladyslav
Simon Kuznets Kharkiv National University of Economics, Ukraine
E-mail address: info@atilog.ua
Keywords: Internet-trading,
stock exchange, security
exchange, broker, exchange, terminal, trading system, financial
innovation, financial technology.
ABSTRACT
The article presents analysis of topical financial technologies. Brokerage
trading systems is considered as the example of innovative financial
technologies. The impact of innovative technologies on the
financial development of the stock exchange is investigated. The nature and
basic principles of Internet-trading are viewed as an innovative financial technology
to Ukrainian security exchange. Theoretical and methodological recommendations
regarding the development of innovative financial technologies on the example
of trade brokerage systems are developed.
1. INTRODUCTION
Nowadays,
the development of the modern global economic system is impossible to imagine without
the influence of the innovation factor. Despite the crisis in the economy, financial
sector continues to introduce innovative technologies, products and tools.
Thus,
the most innovative sectors of finance are traditionally the stock exchange and
banks. However, it should be noted that banking sector offers consumers mostly
new financial products. Innovations in the security market are mainly focused
on the implementation of financial instruments and technologies, due to the
economic nature of the market.
Herewith
new financial instruments implemented by the leading domestic exchanges are
anyways the copy of western analogues (index futures, futures on options, metals
and currencies futures, etc.). The opposite situation occurs on implementing innovative
financial technologies where brokerage trading systems are the most important.
2. LITERATURE REVIEW
The
issue of development of trade brokerage systems was considered in the works of
such prominent foreign and domestic scientists and economists as O. Abakumenko [1],
D. Gladun, S. Korotkyx, M. O. Solodkyx and I. Balabanov [2], E. Zhukov, S.
Mayorov [7], S. Wayne, P. Patel [4] and others.
3. METHODOLOGY
Brokerage
trading systems is one of good examples of new financial technologies. A
significant competition take places because of their design and implementation
that’s why the purpose of this
scientific paper is to develop theoretical and methodological recommendations
regarding the development of innovative financial technologies on the example
of trade brokerage systems.
To
achieve this purpose the following tasks should be solved:
1)
to find out the nature and basic principles of Internet-trading as an
innovative financial technology to Ukrainian security exchange;
2)
to investigate the impact of innovative technologies on the financial
development of the stock exchange;
3)
to establish the basic groups of innovative financial technologies at the
security exchange;
4)
to study certified brokerage trading systems on the market, set their advantages and disadvantages;
5)
to develop a method of their comparing;
6) to standardize
criteria to choose trading platforms;
7)
to provide guidance on the development of brokerage trading systems.
4. DISCUSSIONS AND RESULTS
The
innovative financial technologies are generally considered as achievements and
results of scientific and technological progress implemented to the financial
market. Thus, the results of the scientific and technological progress are quite
widespread, so classification characteristic of technologies depends on. Thus, technologies to access the market (tools
that provide bid on the financial markets) are defined in the scientific
literature. For example, Internet-trading is an asset trading technology via
the Internet. There are several approaches to interpret this definition.
Thus,
S. Mayorov believes that Internet-trading is a mechanism to trade on the stock
exchange by direct electronic access [8].
Internet-trading
is a modern technology to do transactions with securities which allows the brokerage
company automatically serves an unlimited number of clients, sending
information on their applications directly to the exchange trading system [2].
Electronic
trading is a security trading system that allows investors to get direct access
to exchange information and make transactions on securities’ purchase and sale on
the stock exchange in real time [5].
Internet-trading
is the mechanism to do transactions with securities via the Internet using
special software [3].
Because
of definitions mentioned above Internet-trading it should be noted that this
technology provides not only to do transactions with securities, as scientists
mentioned above consider, but to trade on the foreign currency exchange
and the world commodity exchanges and
so on using the Internet and special software. That is why, it is important to
distinguish Internet-trading on security exchange and other markets.
Thus,
Internet-trading is a financial technology that is used to do transactions with
assets in the relevant exchanges in real time via the Internet to use special
software.
Based
on Internet-trading it is developed and implemented the whole range of software
products and technologies that can be divided into two groups: technologies for
regulators and professional
market players and technologies for investors. The second group includes
brokerage trading systems.
Innovative technologies for professional
market players are shown in Table 1
Table 1
Innovative technologies for professional market players
|
Name of applicant |
Name of software |
Developer |
Purpose of the product |
|
Association
"Ukrainian Stock Traders" |
BIT eTradeMail |
"BIT
Production", Ltd |
It
creates organizational and legal, technological prerequisites to construct
electronic document management systems using digital signature. |
|
The Ukrainian
Association of investment business (UAIB) |
BIT eAsset |
"BIT
Production", Ltd |
The
software of funds assets accounting and preparing company’s administrative
data to manage assets for submission to National securities and stock market
commission (NSSMC). |
|
Association
"Ukrainian Stock Traders" |
BIT
eBrokerReportReceivier |
"BIT
Production", Ltd |
The
program is designed to receive, test, storage and preliminary analyze
information electronically to provide securities for professional stock market
players, who have trade license, and provide organization. |
|
"CIAM-Capital",
plc |
Software "ÀFR-Multyzvit" |
"BIT
Production", Ltd |
The
program is designed to prepare and verify reporting issuers of securities to
NSSMC in existing electronic and paper formats and prepare text of
publications for official newspapers. |
|
"Kaidzen-Capital",
Ltd |
Software "ÀFR-ÒTSP" |
"BIT
Production", Ltd |
The
program is designed to prepare and inspect administrative data as for securities
traders activity and to form electronic application in the current format for
subsequent submission to NSSMC by separated specialized programs that ensure
the imposition of digital signature to maintain internal accounting. |
|
Association
"Ukrainian Stock Traders" |
BIT eReport |
"BIT
Production", Ltd |
It
provides automation of securities traders (ST) internal activity, preparing
administrative data for submission to NSSMC and preparing another analytical
accounting registers. |
|
"Perspektiva"
stock exchange, plc |
Electronic trading |
"BIT
Production", Ltd |
It
organizes the exchange trading, clearing, settlement control and appropriate
exchange of information with a help of electronic business turnover through
brokers’ terminals (BIT eTrade, BIT eTradeFuture), preparing reports to NSSMC. |
According
to Table 1, it is found out that the developer of software mentioned above
"BIT Production", Ltd is a monopolist. This practice is typical for
most governmental agencies; in turn it greatly hinders the development of
innovations in the securities market. Thus, in 2016 the recent upgrades of the
software, shown in Table 1 were implemented in the 2013-14 [8].
Particular
attention should be paid to the nature of proposed innovations. Thus, the
instruction of software set BIT eReport, as for software innovations it is stated
the following:
1)
an application "Journal of contracts" to display and analyze related
agreements in a tree structure;
2)
creating securities portfolio according to book price which is automatically
calculated according to the accounting
policy adopted by the user –
«FIFO», "Middle price";
3)
communication with other software;
4)
linking contracts. Imported / introduced primary documents have to be attached
(added) to specific contracts, the fact that the obligations are fulfilled confirmed
by these documents;
5)
to grant signs of financial instruments to calculate the special tax on
securities transactions and legal standards.
Because
of the innovations mentioned above, it is clear that most of them are known for
a long time, but others are the reflection of the nature of software without
witch the software will not function on purpose.
The
situation is different in the software market for investors - brokerage trading
systems which are represented by a wide range of manufacturers. To set the
current list it is necessary to use the information from the exchange website.
For example, the following systems are presented at the Ukrainian stock
exchange (Table 2).
Table 2
Certified brokerage trading systems
|
Name of the system |
Website |
|
Quik |
|
|
Web2L |
|
|
Trader Net |
To
establish the advantages and disadvantages of the existing brokerage trading
systems (BTS), a study was conducted. To achieve the purpose of the research respondents
- students of financial faculty KhNUE (5 groups) were selected. They were proposed
to compare the existing BTS on developed criteria: the informative software, user-friendly
interface, velocity of BPS, charge for BTS, complexity of installation, the number
of brokers that provide BTS, BTS office (the number of functions), difficulty in applying.
The structure criteria used to analyze BTS is shown in Figure 1.
Figure 1. The structure criteria
used to analyze BTS
According
to the results of the conducted research it is found out that the prevailing
system is Quik. It was chosen by 26 respondents as the best software, the
second one is Alor Trade software. It was chosen by 17 respondents. The quantity of chosen BTS is shown in Figure 2.
Figure
2. The quantity of chosen BTS
According
to the results of the further analysis, advantages and disadvantages of BTS
were defined. Thus, the advantages of brokerage trading system Alor Trade are:
1)
access to work simultaneously on multiple accounts at one terminal;
2)
additional function to sub-administrate additional;
3)
access to communicate with technical support within the system;
4)
possibility to choose interface languages: Russian and English;
5)
possibility to transfer information about the dynamics of trading in real time mode
in standard office applications, such as Excel;
6)
uncluttered interface without unnecessary functions and thus it is useful for
beginners.
As
for the disadvantages, they can be referred to the shortcomings of the entire
trading system at the stock market in Ukraine. The following weak sides were
found out:
1)
there is not enough high systems’ reliability and lack of complete analytical
and informational support from the broker;
2) there
is no access to trade online but not through installation on the PC the
version of chosen system;
3)
low speed to process applications;
4)
lack of innovations at the stock market;
5)
lack of people’s awareness about stock market opportunities;
6) imperfect
legal framework.
5. CONCLUSIONS
Consequently,
the security exchange in Ukraine is at the active stage of using innovative
technologies. In the context of globalization it is not possible to increase
capital flows and improve financial culture of population without innovative
technologies. Internet-trading, as an innovative financial instrument at the stock market will help us
improve the economic situation in the country. The conducted research allows
presenting a number of recommendations to develop the security exchange using
innovative financial technology as an example. Nowadays, the main task for
Ukrainian Internet-trading is to get users’ loyalty. To achieve this goal it is
necessary to raise people’s awareness as for potential and benefits to use the
exchange. It is also
important to introduce new financial instruments which don’t exist in Ukraine.
For example, NSSMC is developing dual listing rules that allow securities outside
Ukraine to be traded at our exchanges. But it is not possible to implement these rules
without adjusting investing and currency exchange regulations of National Bank
of Ukraine. As for derivatives market, here our exchange plans to launch a
whole range of commodity futures and foreign exchange instruments for hedging -
futures on the currency pair UAH-USD. But the implementation of these instruments
also depends on the support of the National Bank. Thus, we can define one more shortcoming that must be neutralized. It
is imperfect legal framework. It is also important to improve consumer protection,
reliability and usability. In our opinion it would be very convenient to
deprive software installation regarding the chosen trading system on the PC and
use online full mode to attract users’ attention. Another important problem is
lack of competition at the market of professional software that greatly forces back
the development. Thus, the further development of electronic technology is the
opportunity for Ukrainian market to reach international standards and improve
investment attractiveness for foreign capital.
References
[1] A.V. Abakumenko, Financial innovation in the security exchange in: Actual
problems of the economy, 2006, 12 (66), p.p. 17-21.
[2] I. T. Balabanov, E-commerce, St. Petersburg, 2001.
[3]
T. Manko, Internet-trading for private investors in: The financial market of
Ukraine, 2010, 4, p. 35.
[4] Z. Patel, P. Patel,
Internet-trading. Full Guidance, Moscow, Publishing House "Williams",
2003.
[5] A. M. Sokhatska The Stock Exchange business:
Textbook, Ternopil, Carte Blanche, Kyiv, Condor, 2008.
[6] A. G. Shcherbina,
Innovative technologies on the stock exchange, collected works of National
University of the State Tax Service of Ukraine, 2010, 2, p.p. 240-247.
[7] S. Mayorov, On the current
trends in development of trading technologies in: The Exchange Review,
2009, 10, p.p. 14-17.
[8] National Commission on Securities and the Stock Exchange. Accounting
software, Information on http://www.nssmc.gov.ua/fund/softlist.
[9] Instruction for
software user BIT eReport, Information on http://www.aust.com.ua/docs/ BIT%20eReport%20I%D0%BD%D1%81%D1%82%D1%80%D1%83%D0%BA%D1%86i%D1%8F%20%D0%BA%D0%BE%D1%80%D0%B8%D1%81%D1%82%D1%83%D0%B2%D0%B0%D1%87%D0%B0.pdf