Securities trading desks adopt IM
But prejudice could slow uptake
Instant Messaging (IM) is becoming a presence on securities trading desks in the USA. And Pivot Solutions has developed IM Trader, an IM product for the trading desk.
IM Trader enables customers to place securities orders for trading in a manner that complies with Securities and Exchange Commission rules by transforming instant messages into the standard FIX format for transmission between the buy and sell side parties.
It is contended the majority of US brokerage Wall Street firms use IM. It is further contended that America Online's instant messaging platform (AIM) predominates in this market through its strategic alliance with IM Trader.
Some proponents of IM assert that not only is this an innovative, low cost and easy way of transmitting orders, but that the brokers' trading desks are only responding to the customer demands.
From a regulatory compliance perspective, the SEC views IM as it views email. All IM communications must be logged, recorded and archived. They must be readily accessible to review or inspection. To avoid any compliance concerns, IM order capabilities have to be integrated into the broker's Order Management and Routing Systems.
The major concern for the financial regulators remains the possibility that the trader may have access to another IM service, where messages are not recorded and archived. This could lead to so-called "front running of orders". The unlogged orders from the "alternative IM service" could be used to set the best price for the logged orders coming through the authorised and integrated system.
While the US financial services regulators have not prohibited the use of IM Order services, they are "unsettled about their use". They have not, as yet, offered a solution to this other than stressing that "the books and records should reflect what is really going on", but will have to issue some formal statements on policy and practice if IM trading services continue to proliferate.
In the UK and Europe the use of IM services for placing securities order has not been raised as an issue publicly with financial services regulators. The response is likely to be similar to that of US regulators.
However, advances in financial regulation tend to be more consultative. Accordingly, it is more likely that financial institutions will review the compliance issues impacting the deployment of IM for transmitting securities orders with the relevant financial regulator and implement any necessary additional compliance procedures before they proceed to implement IM trading services.
Recent research in the UK/Europe highlights the technical progress in IM but supports the traditional prejudices towards it. The research showed that while 60 per cent of office workers are IM users, only 28 per cent of them use IM for business purposes. Employees cited instant response, convenience, informality, and faster decision making as their top reasons for using IM at work. More advanced users highlighted features of collaborative business applications and cheap voice calls.
The same research identified why IM was not actually being used as extensively as it could be in business. Fifty-six per cent stated the use of IM was against their corporate IT policy. "Regulatory and compliance" issues and having no permanent record were also cited as a problem, though some IM systems do in fact allow records to be kept. Fear of security and virus risks at eight per cent also featured.
IM services for securities transactions would appear to face a long haul before they are set for widespread adoption in the European region; customer perception being the initial, perhaps, major obstacle.
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