As a constant flourishing place of information, the Internet has unfortunately brought fraudulent activities such as hacking data or illegal transactions, etc. Security risks continue to be challenges for regulators, industry, and jurisdictions.
Table of Contents
1. Introduction
2. Development
i. The characteristics of the Internet and the factors that have led to widespread use of the internet for online share dealing by individual/retail investors
ii. The methods by which an order entered into on online share dealing venue is processed and executed, and the participants in that process
iii. The types of risks that have arisen for individual investors in regard to their use of online share dealing venues
iv. The regulatory authorities responses and advises to some of those investor risks
3. Conclusion
Research Objective and Topics
The assignment investigates the intersection of Internet-based technologies and retail investor share dealing, focusing on how these platforms function and identifying the multifaceted risks that arise for both individual investors and regulatory bodies.
- Evolution of online share dealing and its impact on banking relationships.
- Technical workflows of order processing, execution, and market participation.
- Cybersecurity threats and operational risks facing online retail investors.
- Regulatory frameworks and compliance recommendations for electronic financial environments.
Excerpt from the Book
ii. The methods by which an order entered into on online share dealing venue is processed and executed, and the participants in that process
The “mechanical processes of online share dealing” involve three parts, which are: the front-end, the middleware, and the back-end. The front-end is the account page accessed by the investor once connecting to the broker's website. In this page, the investor is then able to access their account information and trade. The middleware leads the investor to its requested search such as “stock quotes, account information, customer support, etc.”, but it also navigates the investor to “the online broker's database” and to the back-end part, which “accommodate the trading functions”. The back-end part deals with the customer's trade and provides a request confirmation for the trade order passed. Upon order confirmation, “the data flows from the front-end system to the back-end system”. After this step, the scrutinising of the customer takes place through “a computerized process” (from “the broker's own system” or from “a third party provider”, to check for “adequate capital”, for authorisation to “trade on a margin”, and for other “restrictions on the customer's account” (CeFiMS, Unit 5 – p.4).
Once the trade order pass a positive scrutinising process, it can be sent for “execution”. Otherwise, the trade order will be “manually reviewed” by a broker's representative, and upon positive review can then be executed. The next step is the market, which consists of different type of markets such as the New York Stock Exchange in the US, an “electronic communication network (ECN)”, an “over-the-counter market maker”, by “internalising the order flow” through the broker acting as a “market maker”, or a “clearing firm”. The executed order will be notified to the online broker “directly or through the firm's back office provider or clearing agent”, and will be accessible in the “broker's trading system” and ultimately “back to the front-end system to the customer” (CeFiMS, Unit5 – p.5).
Summary of Chapters
1. Introduction: This chapter defines the Internet as a catalyst for financial service evolution and introduces the assignment's focus on retail investor share dealing and associated regulatory challenges.
2. Development: This section explores the proliferation of Internet-based trading, the technical lifecycle of an online trade, specific security and operational risks for investors, and the necessary regulatory responses to maintain fair market environments.
3. Conclusion: The concluding section summarizes how the Internet has transformed investment access while emphasizing that while risks can be mitigated through regulation and vigilance, they cannot be entirely eliminated.
Keywords
Internet banking, retail investors, online share dealing, securities regulation, electronic commerce, cybersecurity, margin trading, market volatility, system outages, financial risk, IOSCO, trade execution, broker-dealers, antifraud, operational capacity.
Frequently Asked Questions
What is the primary focus of this paper?
The paper examines how the Internet has facilitated online share dealing for retail investors and identifies the specific risks and regulatory challenges that have emerged in this digital financial landscape.
What are the core thematic areas discussed?
The core themes include the impact of internet technology on banking, the technical mechanics of online trade execution, security threats such as identity theft and fraud, and the evolving role of regulatory authorities.
What is the main objective of the research?
The objective is to analyze the characteristics of online share dealing and provide an overview of the risks that regulatory authorities must address to protect market integrity and investor safety.
Which scientific methodology is applied?
The paper utilizes a literature-based analytical approach, reviewing reports from organizations like IOSCO, academic sources, and industry guidelines to synthesize current knowledge on online trading regulations and risks.
What topics are covered in the main section?
The main section details the shift toward borderless e-banking, the front-end and back-end processes of trading, specific threats like system outages and margin call risks, and recommendations for firm operational capacity.
Which keywords best characterize this work?
Key terms include online share dealing, securities regulation, electronic finance, cybersecurity, trade execution, and systemic risk.
How does the author describe the front-end and back-end of online trading?
The author defines the front-end as the user interface (the broker's website), while the back-end is responsible for processing, confirming, and executing the trade order through various market participants.
What specific security measures are mentioned in the text for banks?
The text references the implementation of electronic devices creating new passwords for every transfer, alongside broader requirements for confidentiality, integrity, availability, and authentication in firm systems.
What risk is associated with trading securities on margin according to the text?
Trading on margin carries the risk of losing more funds than deposited, mandatory asset liquidation by the firm without notice, and the possibility of firms increasing maintenance requirements unexpectedly.
How do regulatory authorities respond to the challenge of cross-border internet trading?
Authorities respond by forming task forces to provide guidance, strengthening surveillance, and amending regulations to ensure that traditional legal standards can be effectively applied to the unique nature of internet-based trading environments.
- Quote paper
- Jennie Robinson (Author), 2016, The use of internet for retail investors' online share dealing and the regulatory authorities' response to the risks, Munich, GRIN Verlag, https://www.grin.com/document/432712
