JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY MASTERS OF SCIENCE OF ECONOMICS

ACADEMIC YEAR 2015/2016YEAR 1 SEMESTER 2

HBE3111: FINANCIAL INTERMEDIATION

Topic: THE ROLE OF TECHNOLOGY ON REGULATION OF FINANACIAL MARKETS

Names Reg. No

1 MWESIIGYE Philip HD341-C010-1233/2016

Kigali, 20th November 2016

Approach

• Definition of key terms

• Financial markets

• Fungibility

• Technology

• Role of technology in regulation of financial markets

The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange.

A financial market is a market in which people trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural products.

Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution.

Technology is the collection of techniques, skills, methods and

processes used in the production of goods or services or in the

accomplishment of objectives, such as scientific investigation.

According to Hughes, "Technology is a creative process involving

human ingenuity.

Financial intermediation and financial exchanges are based on the exchange of information. In fact, at present, a transaction of exchange of any financial instruments, including cash, equities, bonds, and their derivatives, is just a recording of altered digital information.

The role of technology on regulation of financial markets

The impact of the technology on financial markets regulation is multifaceted and profound. One sees immediately that, first, the Internet facilitates information flows through the following ways.

Information used to evaluate actions, such as analyst’s reports; software and interfaces that facilitate information exchange, dissemination, and evaluation which in turn has accelerated quick regulation by regulators of financial markets thus high yields from the operation.

Second, the technology facilitates interaction among economic agents that is both regulators and market agents. This includes the exchange of financial instruments and physical commodities, as well as of contingent claims on these;

It has also helped financial markets in creation and enhancement of markets; and multi-party live discussion of financial markets.

Disintermediation and standardization: This has facilitated easy and quick reactions of regulatory on financial markets which enhanced economic development of sector which is cost effective than before where we hard a lot of brokers intervening.

The Internet facilitates more direct access of economic agents to markets and, since the Internet is truly a global network, all of the above can be done across national borders, as well as state and local jurisdictions.

Distribution of Functions by regulators: One of the impacts of present and future technologies on systems for delivering financial services is that there is a real possibility of redistribution of function between and among traditional suppliers and potential new entrants.

Quick flow of information: And this has advanced quick decisions on regulations which contributes to better performance on the market.

The technology’s impact as a creator of new processes and interactions. It also creates processes, goods (bonds, derivatives and shares), and interaction that were not possible before

Also technology has played a drastic enhancement of an existing process, the Internet has created tremendous pressure on eliminating price discrimination based on geography or national borders, as well as in increasing price competition among providers of standardized markets.

It has also reduced information asymmetries which where every body wants to deal in financial markets has all adequate information on criteria and requirements.

Improved existing processes of regulation where it is less time consuming compared to previous market dealings before technology

• Intensification of competition: In network markets, the addition of new competitors, say under conditions of free entry, does not change the market structure in any significant way once few firms are in operation. There fore this has facilitated regulators to easy the regulations so that financial markets can perform well with regard to world markets on finance.

Technology has created democratization of trading process, by renovating existing processes such as improvement of an existing process is the elimination of the middleman (broker) in sending orders to financial markets which facilitated the development of these markets as well and trade in general.

o Conclusion

Financial regulators realize that while technology can greatly benefit the markets, it can also make investors and the markets more vulnerable.

The technological advancement has solved challenges like deregulation and globalization which has contributed to the development and better performance of these markets.

Thanks for your Attention