High Tech Hits Wall Street Benefits, Perils When Finance Goes Digital

By Business, Jeffrey Hoffman | St Louis Post-Dispatch (MO), May 31, 1995 | Go to article overview

High Tech Hits Wall Street Benefits, Perils When Finance Goes Digital


Business, Jeffrey Hoffman, St Louis Post-Dispatch (MO)


Want a job on Wall Street? The securities industry, once a genteel, paper-based business, is now an electronic realm requiring a mastery of computers and strong quantitative skills.

A technological revolution under way in the world's financial markets - fueled by cheap and abundant computers and high-speed telecommunications - brings many benefits but also new perils to the ways Wall Street and Main Street invest.

Traders use computers to manage information and handle customer accounts, to measure risk and perform other tasks, some of which weren't possible a few years ago. Electronic networks permit them to move money across international borders at the touch of a button.

With technology, firms can provide new investment products and services offering more choices and potentially higher returns for pension and mutual funds. They also can provide ways for companies to reduce the risks of operating overseas, for example.

But these tools can cause trouble. They helped bankrupt Orange County, sink the Mexican economy and cause the collapse of Barings, Britain's oldest investment bank. Bigger, Faster, Global

Technology has made financial markets bigger, faster and globalized. And more volatile than ever, many analysts say.

Electronic networks now deliver price data, news, company earnings and other information to computer screens everywhere. "Quick dissemination of information makes things fairer for all market participants, big and small," said David Bostian, chief economist for the New York investment firm Herzog, Heine, Geduld.

Moreover, traders using desktop computers can zap billions of dollars between markets around the world.

"Because these markets are electronic, they're all linked together," said Boston economist Joel Kurtzman, author of books on high-tech finance. "There are no more local markets, we have global markets."

Computer automation of stock, bond and commodity trading and the advent of proprietary dealer-broker systems that operate outside of organized exchanges present new challenges to the Securities and Exchange Commission and other agencies overseeing U.S. financial markets.

The most vivid example of the power that technology has transferred to the markets is nations' loss of control over the value of their currencies.

Fifty years ago, the Federal Reserve could dictate the dollar's rate of exchange vs. other currencies by placing orders with commercial banks to buy or sell $10 million. As recently as the late 1980s, dealers feared the power of the central bank.

Today, the market is a $1-trillion-a-day juggernaut, a sea of money in which rates are set by the aggregate actions of currency traders working at computer terminals from London to Tokyo. This market influences the price of goods from Swiss watches to Japanese sewing machines.

This year, the Fed and other central banks spent billions trying to bolster a sagging dollar. But the greenback tumbled as traders rejected Washington's economic policies, fretted about U.S.-Japan trade friction, or simply joined in speculative attacks on the dollar. …

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