Opportunities and Challenges in Edi Applications in Financial Markets

Article excerpt

The traditional business environment is changing rapidly as customers and businesses seek flexibility to change trading partners, platforms, carriers and network at their will. Competitive advantage was once based on structural characteristics such as market power, economies of scale or a broad product line. Today, the emphasis has shifted to capabilities that enable a business to consistently deliver superior value to its customers through better co-ordination and work force management, product and service customization and supply chain management. The developments in information technology such as EDI and information super highway will enable the business to exchange information among constantly changing sets of customers and suppliers on a global basis and thereby deliver more value to customers. It will become a powerful business tool that no organization can do without. The application of EDI has extended to all trade and trade related activities. But firms and financial institutions view the I-way with a mix of eagerness, fear and confusion. However, the development of the financial market is highly dependent on the use of EDI, particularly in the stock markets, banking sector and insurance sector operations. Hence, this paper attempts to examine the application of EDI in financial markets, particularly, banking sector, stock markets and insurance sector. The opportunities and threats inherent in the application of EDI and challenges ahead are discussed.

The opening up of the Indian economy through liberalization, privatization, globalization and the natural thrust towards information technology has created new challenges and opportunities in the country. The restructuring of the economy normally begins with the financial sector reforms. In India too, it was the financial sector that underwent restructuring first and displayed the effect quite early. Both the components of the financial sector viz., the capital markets and the banking sector underwent far-reaching changes. The financial markets is a sector under siege driven by the challenges of globalization, consolidation and new competition, in a market where developments such as the rapid growth of Internet, online banking and electronic commerce are rewriting the rule of business. Information Technology (IT) has been the greatest change agent in this century and is changing every aspect of human life and it is breaking old barriers and building new interconnections in the emerging global village.

IT plays a major role in transforming the financial market to globally competitive market and thus, in the coming years, financial markets are bound to achieve greater international mobility. All the sophisticated financial products and services which are currently in vogue in advanced countries are bound to make their appearance in the Indian financial markets. The stock market operations are being converted into electronic based trading systems, while foreign banks and new private sector banks have come out with technology based innovative financial products. The public sector banks, mutual funds, insurance companies, merchant banks and non-banking financial intermediaries have initiated the process of electronic trading in order to integrate with the global financial markets. This paper attempts to examine the application of Electronic Data Interchange (EDI) in the financial markets, with particular reference to stock markets, banking sector and insurance sector. The opportunities and threats inherent in the application of EDI and the challenges ahead are discussed.

EDI APPLICATION IN FINANCIAL MARKETS

Electronic Data Interchange is a fast and dependable way to deliver electronic transactions by computer-to-computer communications. EDI is defined as the inter-process communication of business in a standardised electronic form. In simple terms, EDI is about doing business transactions with trading partners electronically and thus it is often referred to as "paperless trading". …