distribution systems for securities are expected to fall substantially in many developed and emerging markets.

_Design aspects_ When designing such a system, understanding its customer base is crucial to achieving its main goals. Knowing the customer base is important because standards for simplicity and convenience vary by country. In countries where infrastructure is not readily available or is costly to implement, understanding the preferences of customers makes it possible to focus resources and efforts on areas that add the most value.

Given the objectives of the US TreasuryDirect system, the target customer base consists of citizens of all ages and educational backgrounds. Thus a main focus in designing TreasuryDirect has been to make it simple and convenient as well as able to educate the public. The logo of the new TreasuryDirect system is, “It really is that simple!” The Website educates users on the basics of Treasury securities—including the various types available, how and when auctions are conducted, and the basics of investing in these securities. Focus group studies have been conducted to analyze the main preferences of people using the Website and to determine how the system can be adjusted to address those preferences.

Examinations of similar systems in emerging markets make it clear that the nature of the customer base and the program’s main objectives have not always received sufficient attention— resulting in design weaknesses. (See, for example, the accompanying case study on the Expanded Small Investors’ Program in the Philippines.) It is also important to determine the expected size of the transactions that will go through the system, to anticipate its effects on domestic debt management. In some cases it can be argued that when a large share of outstanding public securities is held by a large number of small investors, the resulting market may be fragmented and illiquid. It is important to anticipate and plan for such side effects. In the United States just 2 percent of marketable government debt securities are being sold through TreasuryDirect. Thus the system has a marginal effect on the overall distribution of debt, but is achieving its target of increasing savings by retail investors.

# _Preconditions: do plumbing and infrastructure matter?_

This study highlights a variety of key preconditions for developing effective electronic distribution channels for government securities. Among the most important are the legal framework, dematerialization of the securities, authentication infrastructure, payments and settlements infrastructure, and e-security measures.

_Legal framework._ A minimum set of legislation must be in place for the system to work. The legal environment for TreasuryDirect requires laws regulating the securities eligible to be sold through the system (including provisions allowing dematerialization), laws governing electronic transactions for these securities (including payment systems), laws related to confidentiality and information disclosure, and laws and regulations related to e-security. In many emerging markets an additional problem is that there are not enough cases on how disputes involving electronic transactions will be 14