Effect of Network Relations on the Adoption of Electronic Trading Systems

Working PaperAuthorsPublish Date
20 Ali Reza Montazemi
John J. Siam
Akbar Esfahanipour
Jun. 2007

Information systems can serve as intermediaries between the buyers and the sellers in a market, creating an “electronic marketplace” that lowers the buyers’ cost to acquire information about sellers’ prices and product offerings. Although electronic trading systems provide potential to create an efficient market structure, we witness 45 trillion-dollar fixed-income (FI) market still makes little use of these systems. Low penetration of electronic trading systems in the marketplace is at odds with the existing IT research doctrine. The reason is that the creation of efficient market structure through electronic marketplace is based on macro level interfirm relationships that do not take into account the recurrent micro level, interpersonal interaction among the market actors. Our empirical investigation, based on face to face interviews with 90 fixed-income senior managers and traders from 25 financial institutions, provides a unique insight into the social capital based on social networks of interpersonal relationships in the fixed income market. Our research findings show that the market structure of embedded interpersonal ties enables participants to take advantage of information asymmetry for profit taking. As a result, imposition of electronic trading systems on the present fixed-income market structure is at odds with the present interfirm market norms and business processes enacted for large transactions among market-makers and institutional investors.

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