Journal of Management Information Systems, 2008, Volume 25,
Issue 1, Page 233-266.
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 that a $45 trillion fixed-income market still makes little use of these systems. Low penetration of electronic trading systems in the marketplace is at odds with the existing information technology research doctrine. The reason is that the creation of efficient market structure through an 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 solely 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.
Keywords: alternative trading systems; arm's-length relationships; electronic trading; embedded relationships; fixed-income market; information flow; network ties