This study examines the benefits and problems arising from the electronic brokerage services and the electronic investment banking processes. Some important benefits of the electronic financial services include greater transparency, more unprecedented opportunities for innovation and competition increase in trading volume, and creative methods for risk reduction. Problems about online broker-dealers and electronic investment banking include lack of direct contact between investor and broker, and glitches in the technology that inconvenient the end users. In the equity market, the channel of distribution through online IPO is limited when compared to traditional pubic offering through underwriters.
One important problem with financial e-commerce is the security and privacy problem. The security issue of online trading business can be divided into two parts: hardware security and software security. Hardware security problems involve network corruption, system crash, communication problem between networking servers and execution servers. Software security problems involve hacking, insider fraud, and account information theft. Brokerage firms use multiple security mechanisms to deal with these problems. These security mechanisms include: (1) Account and password control. This is the basic security control. (2) Encryption of transaction data. Transmission of data online always involves security flows.
Government as well as online financial service providers needs to take responsibilities to educate and communicate with investors to help them understand the benefits and risks of electronic financial services. To create a healthy investment environment is also vital to the future development of an electronic equity market.
Wang, Dannel Te-Shan; Chu, Shin-Herng; and Hwang, Drew, "An Overview of Financial E-Commerce" (2002). ICEB 2002 Proceedings. 169.