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". EDI system converts generic messages (in EDIFACT or any EDI standard format) to RDBMS format and from RDBMS format to EDI format. The three main components in an EDI system are-Application service, Translation service and Communication service. The Application service provides link between a business application and EDI and it allows one to send and receive documents from an EDI system. The translation service converts outgoing documents from an internal format file to an agreed external format and translates incoming documents from an external format to the EDI internal format file. The Communication service sends and receives transmission files to and from trading partners either directly or by using a third - party service called Value Added Network (VAN). EDI also provides a management interface that enables to interactively monitor and control documents and files through the EDI system.
The field of application of EDI extends to all trade and trade related activities. EDI, apart from eliminating paper and manual processing, provides many significant benefits such as marketing competitiveness, administrative cost savings, and shorter time to market, better quality control and improved corporate trading relationships. Leading organisations around the world are making strategic use of EDI for real cost savings. The International Stock Exchange in London uses EDI application to cover transactions between listed companies and the exchange. …