VOLUME 29, NUMBER 2 WALL STREET & TECHNOLOGY APRIL 2011 & TECHNOLOGY APRIL STREET WALL 2 29,NUMBER VOLUME Measuring IT’s Detecting Insider Trading 2011 Tech Spending to Business Value p.10 Before It’s too Late p.14 Jump 6 Percent p.26

April 2011

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Wall_Street_Tech_VEND.indd 1 3/16/11 5:47 PM contents

April 2011 20 Welcome to The Machine Thirty years after it was founded, Bloomberg has become part of the fabric of Wall Steet. Through a dedication to superior customer service and rapid technology innovation, along with a bit of healthy paranoia, the firm has built an empire on the back of the Bloomberg Terminal. Step inside the formerly secretive company with Wall Street & Technology for a look at how Bloomberg Thomas Secunda, pumps out new technology at such a Founding Partner phenomenal pace, and how it is adapting and Global Head of to the changing markets. Financial Products and Services, Bloomberg LP

12 Security 16 Data Management Attack of the In Search of Aggregated Botnets The Reporting To meet client emergence of demand for transparency while off-the-shelf reducing enterprisewide risk, cyber-crime tools asset and wealth managers are such as botnets dumping spreadsheets in favor has transformed of technology that automates hacking into a report aggregation. Cloud-based, point-and-click TODD FERGUSON best-of-breed and in-house process. In response, Raymond solutions all are in the mix. James and other financial servic- es firms are shoring up their defenses with new detection 26 Special Report technologies. The Year of Compliance 20 And the Cloud Spending 14 Compliance on information technology Before the Regulators Come among capital markets firms Knocking With the biggest insider- will jump 6 percent in 2011, trading trial in history under way, topping $44 billion globally, Wall Street firms are on notice — according to Aite Group. the SEC is itensifying its scrutiny Complying with Dodd-Frank of market abuses, and any firm will be a major goal for much caught in the crossfire faces some of that spending, and cloud- 16 serious consequences. To avoid based solutions are likely to CHAT SCRUGGS the same fate as the Galleon benefit across the board. Group, companies are ramping up their internal monitoring and compliance capabilities. COVER PHOTO: TONY VECCHIONE TONY COVER PHOTO:

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 3 contents wallstreetandtech.com Dodd-Frank Cheat Sheet At nearly 1,000 pages long, the Dodd-Frank Wall Street Reform and Consumer Protection Act is not a riveting read. 8 Upfront It’s dense, complicated, confusing and often boring. But it’s also the most important piece of financial regulation since Well Fargo’s Smartphone Policy? Reg NMS, at least. To help you understand what Dodd-Frank Simple. They’re Not Allowed means for your business, we’ve read the entire legislation for you and created the Thomson Reuters, Redkite Team Dodd-Frank Cheat Sheet, which distills the Act down to its essential implications To Sharpen Market Surveillance and highlights its key requirements, important deadlines and the impact on IT. Download your Cheat Sheet today. wallstreetandtech.com/dodd-frank Northern Trust Enhances Passport For Institutional Clients A New Spin on Outsourcing 10 Technology Economics Often controversial, outsourcing is garnering renewed Time for a New Market Index interest on the Street. But capital markets firms today An experimental market index of are redefining outsourcing, leveraging it as a strategic technology leaders demonstrates advantage that delivers business value rather than that IT is a key driver of business simply as a cost-cutting necessity. This special digital success, according to contributing edition of Wall Street & Technology takes an in-depth editor Howard Rubin. It’s time to look at the evolution of outsourcing and identifies the new best practices that are throw out antiquated measures of helping Wall Street firms get the most out of their sourcing strategies. performance and introduce new wallstreetandtech.com/digital-edition/march2011 market indices that reward tech - nology leaders, he says. Soaring in the Cloud Join the industry’s top business technologists 31 Industry Voice at Wall Street & Technology’s Capital Markets What Every Manager Must Know Cloud Symposium as they discuss the realities, capabilities and expectations About Disaster Preparedness surrounding cloud-based applications and infrastructure and how they will dramatically Disaster recovery often is under- change the technology strategies on Wall Street. May 17, 2011, Hilton New York. stood to be the need for backup wallstreetandtech.com/cloud2011 systems to safeguard a firm’s data. But, Animus Solutions’ Adam The Evolving Buy-Side Trader: New Skills, Montella insists, if firms truly want to survive a disaster, preparation must Technology & Knowledge be about much more than just data. Advanced Trading’s Buy-Side Trading Summit 2011 brings together the industry’s top buy-side traders and technology 34 Perspectives executives to discuss the hottest developments in trading, including the growing role of Sacrificing Sacred Cows Industry high-frequency trading, the increasing use of dark pools, new technology for the trading pressures to forgo preferencing desk, transaction cost analysis, risk management and the changing skill set required to restrictions and trade-at rules will be be a successful trader. Oct. 16-18, 2011, Ritz-Carlton Amelia Island, Fla. intense, says special contributing advancedtrading.com/summit2011 editor Larry Tabb — even if the new rules are the right prescription for staving off another Flash Crash. Wall Street & Technology’s 2011 6 From the Editor Reader Advisory Board

John A. Bottega, Chief Data Officer, Robert Palatnick, Managing Director/ Federal Reserve Bank of New York Technology, DTCC

Joseph Ferra, Chief Wireless Officer, Steve Rapp, Managing Director, Fidelity Allianz Global Investors Capital

John Galante, SVP and CTO, J.P. Morgan Steve Rubinow, EVP & co-CIO, Worldwide Securities Services NYSE Euronext

Joe Gawronski, President, Prashant Sarode, VP, Corporate & WALL STREET & TECHNOLOGY (ISSN 1060-989X) is published 5 times per year (February, April, June, September, November) by United Business Rosenblatt Securities Investment Banking Technology, Wachovia Media LLC, 600 Community Drive, Manhasset, NY 11030; tel. 516.562.5000. All rights reserved. SUBSCRIPTION INFORMATION: $85 per year in the U.S., $105 in Canada and $295 elsewhere (payable in U.S. funds). Single-issue Scott Ignall, CTO, Derek Stein, Chief Technology Officer, requests ($7 each), write to: Wall Street & Technology, P.O. Box 1054, Skokie, Ill. 60076-8054; or call 800.682.8297 or 847.647.4065. EDITORIAL OFFICES: Lightspeed Trading Barclays Global Investors 240 West 35th St., 8th Floor, New York, NY 10001, 212.600.3000. POSTMASTER: Please send changes of address to Wall Street & Technology, P.O. Box 1054, Skokie, IL 60076-8054; or call 800.682.8297 OR 847.647.4065. Periodicals postage paid at Manhasset, NY, and additional mailing offices. Ira Lehrman, GHF Group, Timothy M. Tully Jr., SVP & COO, Member, Business Publications Audit of Circulation. Copyright 2011 United Head of Applications and Development BNY Mellon Wealth Management Business Media LLC. Return undeliverable Canadian addresses to Pitney Bowes, P.O. Box 255542, London, ON N6C 6B2. PRINTED IN THE USA.

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AGENCY JOB NO.: CDW.CDWFST.11035.K.011 DATE/TIME: 3-16-2011 4:20 PM BLEED: 8.875” w x 11.375” h DIVISION/OFFICE: Ogilvy/Chicago OPERATOR: Rubani.Shaw TRIM: 7.75” w x 10” h STUDIO JOB NO.: None LIVE: 6.75” w x 9” h VERSION: Base SLUG FONTS: DIN Light, DIN Regular DUPLEX: No REVISION: Final SCALE: 1”:1” NO. OF PAGES: 1 of 1 FONTS: Prelo (Black, Book) PRINTED AT: 100% FILENAME: 94478_CDWFST11035K011_SML IMAGES: 94478_GettyImages_frustrated RESOLUTION PLACED: HiRes Q2 April Securities 1Partn trader at work.tif (671 ppi; CMYK), Ad_Juniper_F.indd 94478_CDW_PWGI_CMYK.ai, EXEC. CREATIVE DIRECTOR: None 94478_juniper_black.eps CREATIVE DIRECTOR: N. Vaznonis AD TITLE: 94478_SML Q2 April Securities COLOR PROFILES: None ART DIRECTOR: M. Gore 1Partn Ad_Juniper TRAPS: None COPYWRITER: M. Haddock CLIENT: CDW DIE CUT: None ACCOUNT: B. Platte CLIENT JOB NO.: CDW 94478 COLOR SWATCHES: Cyan PRINT PRODUCER: A. Kubala BRAND: CDW Magenta TRAFFIC: A. Martinez PRODUCT: Ad Yellow ART BUYER: K. Murphy CODENAME: None Black ENGRAVER: Superior Digital Graphics JOB TYPE: Print JOB CATEGORY: CDW Mechanicals TO APPEAR IN: April Wall Street & Tech 8.875” x 11.375” 7.75” x 10” 6.75” x 9” fromtheeditor

Volume 29, No. 2

VP/GROUP PUBLISHER John Ecke 212.600.3097 [email protected] EDITORIAL Customer Service 101 Editor-in-Chief Greg MacSweeney [email protected] Group Content Manager Les Kovach [email protected] Senior Editor, Head of Video Melanie Rodier [email protected] Editor-at-Large Ivy Schmerken [email protected] Special Contributing Editor Larry Tabb [email protected] LMOST EVERY COMPANY wants to provide great customer Associate Managing Editor Nathan Conz [email protected] service. Many think they do, but few actually deliver. And Contributing Editor Howard A. Rubin [email protected] ART it’s not for a lack of trying. The truth is, outstanding customer Kristen Terrana, Igor Jovicic, Tony Vecchione service levels are very difficult to achieve. BigYellowTaxi.com ADVERTISING SALES OFFICE In order to provide exemplary service, an organization 240 WEST 35TH ST., 8TH FLOOR, NEW YORK, NY 10001 needs to be nimble, knowledgeable, available and empowered. Director of Sales Felissa Kaplan 212.600.3171 [email protected] Northeast Robyn Forma 212.600.3118 [email protected] Often, service representatives have one, two or even three West Coast Leilani Provost 415.947.6146 [email protected] of these traits, but they rarely exhibit all four. Many companies offer 24-hour cus- Southeast and Midwest James Lloyd 212.600.3375 [email protected] A PRODUCTION tomer service, but when you talk to representatives, they lack product knowledge Account Coordinator Amanda Waller [email protected] and can’t answer your questions. Some companies have very knowledgable cus- Publishing Services Manager Ruth Duggan [email protected] AUDIENCE DEVELOPMENT tomer service reps, but they are available only during normal business hours. Assistant Manager Adrienne Farquharson [email protected] Article Reprints and E-Prints Other companies’ customer service organizations run off of scripts and Wright’s Media Brian Kolb 877.652.5295 [email protected] List Rental can handle only specific situations. When something out of the ordinary hap- MeritDirect Anthony Carraturo 914.368.1083 [email protected]

pens, they literally have no idea what to do. And finally, many customer service INFORMATIONWEEK FINANCIAL SERVICES representatives, although they can identify the prob- TechWeb CEO Tony L. Uphoff [email protected] VP and Group Publisher John Ecke [email protected] lem, often lack the authority to solve it (such as EVP, Sales, InformationWeek Business Technology Network Martha Schwartz [email protected] ordering a replacement product). Editorial Director Greg MacSweeney [email protected] We can all think of a few customer service horror Group Content Manager Les Kovach [email protected] Director of Sales Felissa Kaplan [email protected] stories. But can you recall a truly great customer Webmaster Vitali Zhulkovsky [email protected] Senior Director, Events Robyn Duda [email protected] service experience? Personally, Honda has impressed Event Director Jennifer Iannucci [email protected] me, both at the local dealership and through Honda Senior Event Manager Mitzi Trafton [email protected] Senior Event Manager Joseph Marks [email protected] USA, the parent company. The company’s customer Director of Marketing Sherbrooke Balser [email protected] Director, Program Management, Vertical Markets service representatives are knowledgeable, respon- Michelle Somers [email protected] sive and empowered, and the systems at the dealer- Business Manager Joe Donnelly [email protected] UBM TECHWEB ship are integrated with the parent company’s CEO Tony L. Uphoff systems, making for a more seamless experience. Chief Content Officer and Editor-in-Chief, TechWeb.com David Berlind Chief Information Officer David Michael Apple is another company that has great customer Chief Financial Officer John Dennehy Chief Marketing Officer Scott Vaughan service. Either on the phone, through the website or EVP, InformationWeek Business Technology Network Ed Grossman at a store’s “Genius Bar,” the “Geniuses” know how to solve problems, are empow- EVP, Sales, InformationWeek Business Technology Network Martha Schwartz EVP, Group General Manager, UBM TechWeb Events Network Lenny Heymann ered to make decisions and even have creative solutions to unusual problems. EVP, Group General Manager, UBM TechWeb Events Network Greg Kerwin EVP, Sales, UBM TechWeb Events Network Marco Pardi In the financial services space, Bloomberg LP, the focus of this month’s cover EVP, UBM TechWeb Light Reading Communications Group Joseph Braue EVP, UBM TechWeb Game Network Simon Carless story (page 20), is known for its excellent customer service. I had the opportunity SVP, People and Culture Beth Rivera to experience this first-hand. When I began to use Bloomberg Professional VP, Editorial Director, InformationWeek Business Technology Network Fritz Nelson VP, Audience Marketing Dan Melore service for the first time, Bloomberg told me it would send someone to my VP/Group Publisher, Vertical Industries John Ecke VP, Performance Marketing and Analytics Thomas Smith office to help me out. Being accustomed to “average” service from other com- VP, InformationWeek Analytics Art Wittman panies, I thought this was strange and I told Bloomberg not to bother. UNITED BUSINESS MEDIA LLC Despite my protests, not one, but two Bloomberg representatives were at SVP, Strategic Development and Business Administration Pat Nohilly SVP, Manufacturing Marie Myers my office within 20 minutes. They spent an hour with me, and they would have stayed even longer if I didn’t have to rush to another meeting. Within the hour, they answered all of my questions, solved a few technical problems (I’m on a Mac) and gave me a pretty thorough primer on the terminal. That’s how you do customer service.

Greg MacSweeney Editor-in-Chief

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103279_02_AD_Orders_WST_AT.indd 1 8/24/10 4:40:40 PM upTRENDS AND ANALYSISfront Smartphone Policy? Simple. They’re Not Allowed

WELLS FARGO EMPLOYEE can connect to based] Wells Fargo does, however, supply employees with Wells Fargo’s network using any mobile corporate-approved smartphones, and a limited deploy- device he or she wants — as long ment of iPads that can connect to e-mail and other as it’s the device provided corporate systems.” by Wells Fargo. When it According to Computerworld, Wells comes to connecting Fargo employees given a company phone personal devices — can choose from multiple devices AiPhones and iPads; Android, RIM or running iOS, BlackBerry or Android Palm phones and tablets; laptops, etc. operating systems, and some are pro- — to Wells Fargo’s network, however, vided iPads. Not a bad policy, indeed. that’s simply not allowed. But former Wachovia employees, who As Computerworld recently reported: until Wells Fargo began merging with “The ‘just say no’ policy applies to Apple the bank were able to eliminate corpo- iPads, Android tablets and smartphones rate smartphones by connecting personal owned by employees. The company also has devices to the network, now have to go back WS strict policies regarding use of Twitter and Facebook, to carrying two devices. &T making the sites off-limits to many. [San Francisco- —Matt Gunn, Bank Systems & Technology

Thomson Reuters, Redkite Team To Sharpen Market Surveillance

HOMSON REUTERS has teamed facing the drafting of new regulations at demand for improved surveillance prod- with Redkite Financial Markets to a record pace, including new rules in the ucts and processes in the face of imminent offer a real-time trade surveil- United States resulting from the imple- market structure changes,” commented T lance solution with relevant pre- mentation of the Dodd-Frank Act and the Mike Powell, Thomson Reuters’ global and post-trade information for monitoring SEC’s investigation into the Flash Crash; head of enterprise real-time solutions, in and risk management controls. The inte- the advent of the European Securities a release announcing Redeye. “The combi- grated offering, Redeye Surveillance, is a and Markets Authority (ESMA) and nation of Thomson Reuters Elektron and response to regulatory pressures on buy- extensions to the Market Abuse Redeye will provide a high-performance and sell-side firms that are driving the Directive in Europe; and other new regu- solution to support customers’ trading need for risk management, compliance lations worldwide from sources such as workflow and better enable them to meet and surveillance solutions. the August 2010 IOSCO report. new regulatory requirements.” Global buy- and sell-side firms are “Globally, we are seeing increased Thomson Reuters’ clients will be able

8 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 TRENDS AND ANALYSIS upfront

Northern Trust Enhances Passport For Institutional Clients

ORTHERN TRUST HAS introduced an enhanced a single entity — either issuer version of its Passport web portal, which allows or counterparty. Through the institutional investors to access and analyze their Passport dashboard, clients investment information. The new version of the por- can retrieve total holdings in tal eases collaboration and data integration across any one issuer/counterparty NNorthern Trust’s global operating platform for asset servicing and across exposure types, asset asset management, according to the investment manager. types and accounts, including Passport utilizes Northern Trust’s global technology infra- the option to peek-through to structure to deliver investor information, such as asset allocation, holdings in commingled funds, transaction history and market valuation, to clients across the Northern Trust says. world. The firm says Passport allows all users, whether the chief In addition, Passport offers The new version of Passport investment officer of a U.S. endowment, a U.K. hedge fund man- enhanced data-retrieval and includes improved data ager or an Asian central bank risk officer, to organize graphic report-generation capabilities management, risk manage- presentations and detailed asset or portfolio reports to meet their for clients that manage com- ment and reporting capabilities. needs. The improved platform includes a new user-friendly layout plex portfolios. To deliver with drag-and-drop capabilities that allow firms to customize these details more efficiently, Passport now displays represen- their pages, advanced search with autofill capabilities for data tative sample images of all reports in the template library along retrieval, dedicated space to schedule reports for electronic deliv- with descriptions and report parameters, according to the press ery, in-depth report details to ensure accuracy, and visual graphics release. Running and scheduling reports also is made easier to allow users to quickly locate templates, according to a release. with the ability to create and save data filters that can auto- “Global investors know that Northern Trust Passport is a populate the report with a single click. secure, one-stop entry point for asset information, functionality “Our upgraded Passport is a product of melding ... client- and the market-leading analytical tools they need to oversee focused development with user-centric design principles, creating large, complex portfolios,” said Paul d’Ouville, global head of a rich, intuitive user experience,” said Geordan Capes, global product management for corporate and institutional services at head of Passport product development at Northern Trust, in the Northern Trust, in the release. release. “As investment complexity grows, it is even more impor- The new version of Passport also includes enhanced risk tant to harness the rapidly changing landscape of technology and management capabilities. The Exposure risk management tool build capabilities to enable clients to quickly retrieve the data WS allows clients to collate information about exposure related to they need to make smart decisions.” &T —Greg MacSweeney

“We are seeing increased demand to access the Redkite trade surveillance market connectivity in the Elektron fully for improved solution as a managed service within managed, low-latency hosting environ- surveillance products Thomson Reuters’ Elektron high-perfor- ment, allowing them to rapidly integrate, mance, real-time network hosting environ- test and use new surveillance strategies, and processes.” ment. In addition, Redeye also will be according to the release. —Mike Powell, available as a deployed solution within a In a statement, Justin Amos, Redkite’s Thomson Reuters firm’s own enterprise environment, co-founder and CEO, added, “Working with according to the release. Thomson Reuters will ensure that Redeye Users of Redeye, the first trade surveil- users will have access to the most compre- lance solution available through Elektron, hensive global cross-asset content from the will have access to a fully managed, inte- leading market data and infrastructure grated solution incorporating Thomson provider, with comprehensive, dedicated Reuters’ real-time pricing, news and tick hosting and application support afforded by WS history data. Firms also will be able to Elektron’s global footprint.” &T colocate their trading applications and —Ivy Schmerken

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 9 technologyeconomics HOWARD A. RUBIN, CONTRIBUTING EDITOR The ‘Rubin 300’ An experimental market index of technology leaders shows that IT is a key driver of business success, even when the economy has slowed.

RADITIONAL INDICES such efficiency. The TLI tracks the indexed market capital- as the Dow Jones Industrial ization of more than 300 leading technology firms in Average (DJIA) or the Fortune 21 sectors (for a complete list of the “Rubin 300,” vis- 500 focus on top performers it www.rubinworldwide.com/chart/companies.php) without any considerations oth- as well as the Dow Jones Industrial Average, the er than their market capitaliza- Standard & Poor’s 500 (S&P 500) and the Fortune 500. tion, share price, revenue or other 20th-century measures of Grand Experiment With Grand Results business performance. But in a Technology Economy, From January 2006 to Dec. 31, 2010, the TLI has con- Howard A. Rubin, Ttechnology is a strategic lever, a tool to drive new sistently outperformed the S&P 500 and, since the begin- CEO, Rubin business growth, protect revenue, reduce business ning of 2010, has begun to surpass the DJIA. Since the Worldwide costs and manage risk. beginning of the study, the TLI has outperformed the So let’s do an experiment and look at a “new age” S&P 500 by 6.7 percent and the DJIA by 1.2 percent; it Dow Jones Industrial Average — a market index of has lagged the Fortune 500 by 2.3 percent. These results firms that have been identified as technology leaders. highlight the importance of strategic technology invest- Let’s call it the Technology Leaders Index, or TLI. By ment in business performance and imply that technol- building and observing the behavior of the TLI, we ogy leaders have overcome the hardships of the can test the hypothesis that has gone unspoken and economic crisis more quickly than their competitors. unexplored: Firms that make the best strategic invest- These results can be explained by two trends that ments in and use of information technology should are closely correlated to the impact IT investment has demonstrate superior market performance. had on the performances of technology leaders. First, It is an interesting time to conduct technology leaders seem to have shown a greater IT investment such an experiment. Between 2008 and resistance to the economic crisis than the S&P 500, 2009, IT investment suffered a global with a drop in market capitalization of 22.2 percent provides an slowdown. The recession led many compared to a 27 percent drop for the S&P 500. enhanced CEOs to believe IT was one of the main Second, the TLI seems to be overcoming the crisis cost pools that could safely be reduced faster, showing 5.6 percent growth in 2010, while the competitive without impacting a firm’s overall per- DJIA achieved 2.4 percent growth and the S&P 500 advantage in formance. As a result, IT spending fell by 8.6 percent. The Fortune 500 is the only index sectors that are decreased by 2.6 percent between 2008 that outperformed the TLI, with 7 percent growth. and 2009 in the United States, according This demonstrates that in times of economic down- particularly to Gartner’s 2010 IT spending report. turn, the competitive advantage obtained by technol- data intensive. The Technology Leadership Index, how- ogy leaders enables them to be more agile than their ever, demonstrates that the firms that peers. Firms that have maintained a constant level of adopted a different approach seem to IT investment are rebounding faster than their peers, have fared better than their peers. and are thus better positioned to grab the opportuni- So what is a technology leader? Tech leaders are ties of the recovery. not limited to companies that produce and commer- While the Fortune 500 has generally outpaced the cialize technology products and services; they also TLI, in some sectors the TLI has managed to steadily include companies that position technology as a strate- outperform or remain on par with the Fortune 500. gic asset and rely on technology to improve business Predictably, between 2006 and 2010, the TLI generated,

10 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 Change in Index Values (2006-2010) on average, more value than the The TLI outperformed the S&P 500 by, on Fortune 500 in technical sectors, average, 0.6 percent in 2006, 9.8 percent in 2007, such as information technology 5.2 percent in 2008, 5.8 percent in 2009 and 14.5 (+6.7 percent) and construction 40% percent in 2010. In addition, the TLI gained the and engineering (+36 percent). In upper hand on the DJIA in 2010 by 3 percent. addition, the TLI and Fortune 500 30% have been on par in the manufac- 20% turing sector (with an overall dif- ference of 0.3 percent in favor of 10% the TLI) as well as in energy and utilities (-2 percent). 0% The TLI has been particularly strong in the financial domain, out- -10% performing the Fortune 500 by 5.2 percent in the insurance sector and -20% by 4.1 percent in consulting. The TLI also has shown equivalent per- -30% formance in the banking and finan- 2006 2007 2008 2009 2010 cial sector (-0.4 percent difference). Source: Rubin Worldwide TLI DJIA Fortune 500 S&P 500 This indicates that IT investment provides an enhanced competitive advantage in sectors that are particularly data intensive relationship between technology and business and require tailored, customer-centered services. results. But much more analysis is required to provide Even more interesting is the fact that in the heart better insight into that relationship. of the economic recession this sector was under con- 2. Tools and methodologies to analyze the siderable pressure to reduce IT spending. The TLI information. While many organizations are awash demonstrates, however, that firms that maintained a with data, they often do not have the tools or method- greater level of IT investment not only have remained ologies to use the information to make informed deci- competitive, they also have outperformed — and con- sions. Firms should identify what kinds of information tinue to outperform — their more conservative peers. they have to assist them in determining their own All of this helps demonstrate that IT is more than technology economics. a cost to be cut down during difficult times. IT is a 3. Measures and processes. Organizations key driver of business success, even when the econ- should develop business cases with quantitative omy has slowed. Sustained IT investment generates goals to establish the value of each project — their competitive strengths such as an enhanced customer potential to reduce costs, grow revenues, manage relationship via effective database management, risk, avoid costs and protect revenue. All significant which can be critical both when times require caution projects should be measured against these goals to regarding costs and when new opportunities arise. determine their effectiveness. 4. Communication of performance. Transparent Further Exploration communication of ongoing performance and results The Technology Leadership Index’s findings provide will likely provide clear evidence of the strong impact significant evidence of a relationship between tech- of technology, but most certainly will provide the ability nology investment and business results, but the true to make effective business decisions. dynamics of this relationship are unclear. To fully Beyond these improvements, it does seem clear understand and communicate IT’s role in creating (and obvious) from this experiment that it is time for change within businesses, the field of technology eco- markets to recognize and reward those firms that best nomics must continue to develop. leverage information technology. Evidence of the ever To date, technology economics have relied largely elusive “Value of IT” is right there in the TLI behavior on data sets created with traditional technology per- versus the markets for all to observe. formance and financial measures in mind. To clearly It is time for a new view of the value of IT. It is understand and communicate the value that technol- time to toss out industrial-age market relics and intro- ogy creates for businesses, organizations and nations duce new market indices. Perhaps this experiment WS alike, however, four elements must be improved: is the right start. &T 1. Awareness of the potential of such infor- mation. Measures such as the Technology Howard A. Rubin is founder of Rubin Worldwide, a research and advisory firm Leadership Index clearly demonstrate that there is a focused on the economics of business technology. [email protected]

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 11 e

Attackof theBots The emergence of botnets and other off-the-shelf cyber-crime tools has transformed hacking into a point-and-click process. To fight these ‘advanced persistent threats’ Wall Street firms including Raymond James Financial are adopting new detection technologies. By Anne Rawland Gabriel

ACKING THROUGH A FINANCIAL firm’s method is via a single bot (a tiny automated software program). multilayered defenses once required con- “These bots send a signal to a C&C [command-and-control] server,” siderable effort. But now it takes just a few explains veteran networking security specialist John Pescatore, mouse clicks. By exploiting gray areas in who is a distinguished analyst with Gartner. “While they can per- the legal code, yesterday’s attention-seek- form other functions, their primary purpose is acting as a conduit ing hackers have morphed into today’s cap- for the malware that subsequently carries out an attack.” ital-motivated entrepreneurs. Such bots silently hitch a ride on a user’s computer during HThese “black hat” businesses have reshaped the threat land- visits to legitimate, but breeched, websites. And it’s nearly scape in two critical ways. First, they create and sell malware impossible to detect which websites are affected, according to tool kits, making the process of unleashing potent attacks as experts. “It’s not about visiting porn or other shady websites simple as choosing from a menu of options. And second, they anymore,” stresses Pescatore. Bots and botnets are now so build and operate sophisticated distribution systems called bot- widespread that “virtually any website” can be infected, he says. nets, permitting cyber criminals to launch attacks with such speed and stealth that it’s impossible to warn users in advance. Fortifying the Defenses According to security experts, today’s preferred infiltration This toxic combination of botnet ubiquity and the simplicity of unleashing an attack makes every financial firm a top target — which is exactly why Raymond James Financial began consid- “Today’s ering in the latter half of 2009 enhancements to its existing mal- threats are ware defenses. “Malware attacks had become almost completely a moving for-profit or to obtain intellectual property,” affirms Todd Ferguson, enterprise information security architect for target.” Raymond James. “So we started looking at the emerging cate- —Todd Ferguson, gory of advanced persistent threat (APT)-detection vendors to Raymond James further fortify our security posture.” Financial The St. Petersburg, Fla.-based financial services firm quickly rejected several solutions as insufficient. “Some seemed more like whitelist/blacklist solutions,” comments Ferguson. “We need- ed something more robust that could handle dynamic threat envi- ronments and minimize the noise for us to wade through.”

12 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 The Changing IT Security Paradigm

hereas security solutions were “30 to 50 layers of security,” concurs. “We processes you’ll need, beyond physical once thought of as prevention regularly see 3 to 7 percent of all assets threat removal,” he emphasizes. “For a Wsystems, today’s advanced not only compromised but actively com- disclosure event, incident response pro- threat landscape requires a mind-set municating with criminal operators,” he cedures and forensics are critical.” shift and a new focus on detection, reports. “Within the ISP marketplace, 20 To choose the right solution, according to IT security experts, who to 24 percent are actively under control.” Pescatore recommends considering point out that chances are good that your Given today’s realities, security infra- reputation-based and binary-based firm already is affected. structures are evolving to include detec- advanced persistent threat (APT) In fact, Gartner estimates a minimum tion and mitigation alongside traditional solutions. “Reputation-based systems of 4 percent to 8 percent of the com- prevention. “We’re seeing a shift away compare outgoing traffic to known mali- puters on most enterprise networks from highly paid rapid-response teams cious and compromised sites,” he could contain at least one bot that is to technology solutions that give help explains. “Binary-based solutions exam- actively phoning home. For companies desks the tools for managing incidents ine incoming executable files and with business-to-consumer relation- and the workflows to remediate affected perform an on-the-fly analysis to identify ships, the analyst firm says, the numbers systems,” Ollmann explains. “With the which are dangerous.” can be higher since consumers’ com- right solutions, the tools can automate Ideally, financial firms will adopt a puters are estimated to be contaminated and drive the response.” solution, or a combination of solutions, at a rate of about 25 percent. In addition, financial firms should con- that provides both reputation- and bina- Gunter Ollmann, research VP for sider compliance implications, advises ry-based detection, Pescatore says. “For Damballa, a solution provider to “tech- Gartner distinguished analyst John the best security posture, I always rec- nology elite customers” with as many as Pescatore. “Think through all of the ommend both,” he insists. —A.R.G.

This left two contenders, according to Ferguson, who says Ferguson, adding, “We not only accommodated Damballa but Raymond James took a novel approach to assess them. “We also addressed lessons learned during the bake-off with respect evaluated them side by side with our existing solutions,” to our existing systems.” Ferguson explains. “We wanted to see where there was overlap Perhaps most significant, Raymond James no longer just and where we might need more visibility. In addition, we wanted neutralizes threats — it now shares data acquired during the to identify whether there were opportunities within our existing remediation process with the appropriate threat-detection ven- tools to improve their protective posture.” dors. “By sharing data with our vendors we can challenge To accomplish its evaluation goals, Raymond James con- them to improve their solutions,” Ferguson asserts. “Ultimately, ducted a 13-week bake-off, using production traffic, beginning this enhances our defensive posture as our vendors introduce in April 2010, Ferguson reports. During this time, existing and new features and functions.” prospective solutions ran head-to-head, which allowed Raymond In addition, the firm also updated various existing systems James to see which ones best filled security gaps. “In other “to provide additional benefits and improve our protective words, from an operating expense perspective, we could deter- stance,” Ferguson adds. mine which tool — existing or prospective — would give us Since completing the transformation in September 2010, the most bang for the buck,” Ferguson says. Raymond James’ security posture has palpably improved, Upon analyzing the trial’s findings, Raymond James decided Ferguson says. “We’re absolutely addressing threats at an that adding Failsafe from Atlanta-based Damballa to its existing accelerated pace,” he contends. “This is because the data we mix provided clear advantages. “Failsafe gave us greater visi- receive from Damballa generally provides enough evidence bility into certain areas. Plus, it provided accurate and action- for us to take action on first look.” able information as well as having a low false-positive rate,” With less work required to locate and research potential according to Ferguson. In addition to the Damballa solution’s malicious activities, the efficiency of Raymond James’ security detection capabilities, the vendor was “very receptive to candid operations also has improved. “With malware versions changing feedback and has already incorporated some of it into their so quickly, today’s threats are a moving target,” Ferguson says. production product,” he adds. “But our visibility into those threats is vastly better than before; so we’re definitely more productive.” A Shifting Response Paradigm But solutions like Damballa are hardly substitutes for exist- Having already tested Damballa in production, the process of ing deterrent layers, emphasizes Ferguson. “Investing in this deploying the solution was simply a matter of acquisition and instal- new detection technology isn’t a replacement,” he stresses. “It lation, according to Ferguson. However, updating security policies has given us another security component because Damballa and procedures to incorporate Damballa was another matter. looks at threats from a communication perspective, which is “It required a paradigm shift from typical antivirus different than traditional protection solutions.” response,” Ferguson says. With Damballa, he explains, an alert Going forward, Ferguson expects to continue evolving necessitates investigating whether the flagged traffic is actually Raymond James’ security infrastructure. “As an organization malicious or just benign. we don’t just install something and quit,” he says. “We evaluate Consequently, Raymond James overhauled its operational new tools and solutions on an ongoing basis. Given the fluid WS response. “We rewrote our entire response procedure,” reports threat landscape, I don’t think that will ever stop.” &T

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 13 compliance

Before the REGULATORS COME KNOCKING With the biggest insider trading trial in history currently under way, Wall Street firms are ramping up their technology to try to prevent market abuses before it’s too late. By Melanie Rodier

LREADY BATTERED BY the financial crisis everything must be recorded, analyzed, archived and made and the Madoff scandal, the hedge fund indus- retrievable,” Mizen notes in her report. try was further rocked as details emerged in Given regulators’ new zeal, now more than ever it is in late 2009 of the widest-reaching insider trad- Wall Street firms’ best interests to try to stop insider trading. ing case in history. In early March, hedge If a firm catches the SEC’s eye and regulators bring about fund chief executive Raj Rajaratnam final- insider trading charges against an employee, the conse- ly went on trial, charged with 14 counts quences can be devastating for the firm. Galleon Group, Aof conspiracy and securities fraud for allegedly trading on for example, disintegrated when Rajaratnam was arrested. illegal stock tips he received from Silicon Valley sources. “Firms recognize that insider trading and other serious The trial comes a year and a half after federal prosecu- compliance violations may significantly impact their business tors, long criticized for their lack of action against white strategy or even pose a threat to their existence,” says Yvonne collar crime, signaled renewed intensity in their pursuit of Pytlik, chief compliance officer at Dreman Value Management, insider trading by revealing that they had used wiretaps an asset management firm in Jersey City, N.J., for institutional for the first time, to build the case against Rajaratnam, clients that has $5 billion in assets under management. who founded the Galleon Group. Indeed, scrutiny of con- versations — conducted over the telephone or even via Ramping Up Compliance Capabilities social media — is playing an increasingly important role To tackle the notoriously difficult challenge of stopping in regulators’ hunt for abuses, according to Miranda Mizen, employees from illegally acting on inside information, finan- principal and head of European research at Tabb Group. cial organizations have been ramping up their compliance And it’s not just in the United States. The U.K.’s processes, policies and systems. “On the surface, when Financial Services Authority recently extended the record- someone is requesting a trade, you need to look at whether ing of cell phone conversations to hedge funds and expand- there are any conflicts,” says Carol Becket, compliance sur- ed taping rules for brokers to include all voice and veillance technology manager at Wolters Kluwer Financial electronic communications, Mizen reports in a recent Tabb Services. “What are the patterns on the trades? You need paper on market surveillance, “Dynamic Surveillance: to compare that person’s trade to the firm’s trading. Detection, Prevention and Deterrence.” “When you’re looking at trading activity, you need The report stresses that regulators are watching closely automation,” Becket continues. “It’s not feasible to pull the expanding use of social networks at capital markets together information manually anymore. When you pre- firms, which until recently simply prohibited employees clear trading, you need to look for restricted lists [of stocks from using social networks because of compliance fears. that can’t be traded due to access to inside information], as Today, Bloomberg messaging, Twitter and Facebook all well as orders on the trading desk and short-term trading. have been added to the list of products regulators are mon- You have to look for patterns, take things that may or may itoring. “Financial firms are now firmly in an era when not have been flagged as a conflict and look at front-running

14 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 “Firms recognize that insider trading [may] ... pose a threat to reports. You need to pull data from one venue and then from their existence.” another and put it together, compare it and make a report.” —Yvonne Pytlik, Pattern-detection technology has been around for some Dreman Value Management time — but lately firms have become much more interested in adopting it, according to Jim Heinzman, managing direc- tor responsible for global securities markets products at But while big firms now realize that it is crucial for Actimize, which provides market surveillance and moni- them to adopt more sophisticated surveillance technology, toring solutions to the capital markets industry. “We use a smaller companies do not necessarily feel the same way combination of profiles, pattern detection and analysis to — perhaps with just reason. “Bigger firms often have pro- look for cases that must be investigated,” he reports. “Most prietary [surveillance] systems, as they have so many inter- of the stuff we’ve been doing for a while. But one of the woven entities they have to cover and need to track differences is, the adoption rate is a lot higher now.” employees across different business lines,” says Amy A few years ago, banks would just monitor blackout Lynch, president of the advisory firm Frontline Compliance. periods, simply prohibiting personal trades during this No matter what the system is, though, it’s only as good time, adds Dreman Value Management’s Pytlik. “Now they as the information it captures, she points out. “If it’s not are front-running reports, carrying out trend analysis, look- capturing everything, it can’t do a complete job in moni- ing out for patterns,” she says. “In the past they were using toring and surveilling violations. The more complex, high- a simplistic approach. But now they are using much more er-end solutions can do that,” Lynch notes. sophisticated solutions to identify patterns and trends. I “But for smaller firms, unless they have more than 30 believe that more algorithm-based [surveillance] solutions employees, cost/benefit analysis shows it’s not worth it will be evolving in the upcoming years.” for them to have a technology solution,” Lynch contends. “In this case, a manual process can work just as well.” A Better View of Threats Ian Yankwitt, president of Tortoise Investment In addition to running more detailed analysis of trades to Management, a White Plains, N.Y.-based asset manager with try to spot fraudulent patterns, Wall Street firms and ven- only a handful of employees, agrees. His firm, he says, would dors also have been increasingly focusing on providing not benefit from sophisticated surveillance technology. enhanced, and more automated, reporting. For example, Compliance at Tortoise “is more a process,” Yankwitt Advent Software-owned vendor Tamale recently added indicates. “In a firm like ours, where we’re investing our features to its research management solution that enable clients’ money, there is very little else that goes on — all a chief compliance officer to “review and annotate notes” our employees have to clear all their personal trading. But on companies and meetings that employees have entered that’s not a technology function. The way our business is in the system, says Mark Rice, SVP and general manager structured, and given what people are investing in, if some- of Tamale. Recent enhancements to the solution also one has insider information and is trying to trade on it, it’s “include the ability to put an ‘extract’ on a CD, which can going to stick out like a sore thumb.” then be handed to the SEC on request,” Rice notes. Even at the largest firms, however, the electronic nature “Most of the time you don’t realize how much data you of trading makes it increasingly likely that market abusers need to compare until a regulator comes in and says, ‘I will be caught since so much data is captured, Tabb want to see this and this.’” says Wolters Kluwer’s Becket. Group’s Mizen points out in her report. But insider trading “And if you’re giving manual notes, you’re exposed. There still will forever be a game of cat and mouse — if a tipster might be handwritten notes or personal notes on them. is meeting someone in a bar or restaurant, there is no tech- But you want to just give regulators a report. You don’t nology that can immediately track that, unless one of the want them to pick through your files.” people is wiretapped, which means prosecutors have Firms also are adopting a more enterprisewide view of already begun an official investigation. risk, governance and compliance, which helps detect mar- Making it even more difficult to prevent insider trading, ket abuses such as insider trading, Dreman Value corporate politics often present hurdles to internal surveil- Management’s Pytlik says. As a result, vendors such as lance programs, according to Frontline’s Lynch. “The high- SunGard, Oracle and IBM have moved from providing a er up the individual [who is suspected of insider trading], simple compliance trading solution to offering solutions the harder it is to monitor,” she says. “The board is afraid that integrate governance, risk and compliance — from a to ask questions of its top management. That becomes a data monitoring perspective to compliance reporting and political issue within the firm. If something is flagged but dashboard reporting at the board level, she says. it regards the CEO, they don’t follow through. It’s political; “Before, compliance risk, credit risk and market risk people are worried about their jobs.” were in silos,” Pytlik relates. “Now companies are trying But job security pales in comparison with what can to integrate one single view across the organization. It’s happen when the regulators come knocking on the door. much more effective in identifying the highest risk in the In the Galleon case, it was the beginning of the demise of WS organization rather than looking at a siloed environment.” the company itself and a likely jail term for its founder. &T

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 15 datamanagement A Complete View To meet client demand for transparency and minimize risk, asset and wealth managers are dumping unweildy spreadsheets for technology that streamlines and automates report aggregation, including cloud-based, best-of-breed and in-house solutions. By Anne Rawland Gabriel

ONE ARE THE DAYS when an gies are coming to the rescue. While there is no one path investor with concerns about, say, to the goal, firms are successfully pursuing cloud, hybrid Ireland’s economy could be reas- and in-house aggregating and reporting solutions. sured by a phone call. Now investors, large and small, want a Head Start in the Cloud detailed report showing their exact At recently established Halyard Asset Management in exposures in all Irish assets, in all White Plains, N.Y., report aggregation and delivery doesn’t Gaccounts, in real time. What’s more, post-crisis regula- just occur in the cloud — the availability of a SaaS-based tory changes — both existing and anticipated — will solution is credited with making the firm a reality. only add to the pressure on capital markets firms to Prior to cofounding Halyard, principal Steve Boyd provide increased transparency. evaluated accounting, analytics and compliance sys- “Clients and regulators are demanding increased tems at his previous firm to replace spreadsheet-based disclosure and more information, delivered faster,” manual processes. Ultimately, he recalls, Clearwater affirms Denise Valentine, senior analyst with Aite Analytics (Bosie, Idaho) was selected for its features Group. “But firms are coping with multiple systems, and minimal up-front requirements, both in terms of multiple locations and multiple data formats.” development and implementation. Indeed, the responses to report aggregation Later, Boyd says, he knew the system would be per- demands at most firms have been manual and localized. fect for launching Halyard. “Clearwater provided mul- Functionally, this has meant gathering and authenti- tiple types of functionalities in one system, with very cating information across dozens, hundreds or even minimal implementation,” Boyd explains. “It allowed thousands of spreadsheets. Consequently, Valentine us to launch our business on Sept. 1, 2010, without a says, any technology solution that proposes to stream- significant budget for software.” line report aggregation needs to do two things: work In addition to its cost-effectiveness, Clearwater also across silos and establish automated workflows. provided the necessary tool set, Boyd stresses. “The In addition, report creation and delivery must be system is geared toward fixed-income but does equities addressed by any enterprise solution. “A good solution as well,” he says. “On the other hand, equity-oriented provides desktop publishing capabilities with an inter- systems require significant development work to adapt face that doesn’t require you know desktop publishing,” them to also handle fixed income.” Valentine says. And, she adds, it should supply infor- Although Halyard is both an asset manager and a mation in multiple formats across multiple channels wealth manager, a key benefit of using Clearwater is its — over the phone, on the web or to a mobile device. ability to handle accounts with multiple managers, such Fortunately, data and process management technolo- as in family offices, according to Boyd. “Whether it’s equi-

16 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 ties or fixed assets, we can look at aggregated informa- each service was selected based on compatibility with tion as one portfolio, break it down by individual man- the corresponding portfolio management applications ager or even view it by line item,” he says. “That’s a that form the next layer, explains Chat Scruggs, CTO huge plus. Previously I’d have had to get the character- for the Overland Park, Kan.-based firm. istics from each manager, standardize the data, plug it “For broker-dealers, the account aggregator into a spreadsheet and manipulate it myself.” CashEdge [New York] is integrated directly with the Compared to such manual data aggregation meth- portfolio management application Albridge Wealth ods, Boyd says, adopting Clearwater was the right Reporting [Lawrenceville, N.J.],” says Scruggs. “And way to go. “Our goal is growth over the next three to Albridge performs data reconciliation chores.” five years, which we couldn’t do if we were using On the RIA side, CashEdge competitor spreadsheets for reporting,” he asserts. “But, with ByAllAccounts (Woburn, Mass.) provides data for Clearwater, we can do it comfortably without addi- portfolio solutions from San Francisco-based Advent tional IT personnel or infrastructure.” and Chicago-based Morningstar Office. Data, Scruggs And implementing Clearwater took less than three acknowledges, arrives “reconciliation-ready,” requir- months — with only one person dedicated to the proj- ing VSR internal staff to perform reconciliation activ- ect, Boyd adds. “It was as simple as getting permission ities. “Since data received by ByAllAccounts and from clients and providing custodian information to Clearwater,” he relates. “Then scrubbing chores occurred between “We can look at aggregated Clearwater and the custodians. After Clearwater was comfortable, we checked the information against our information as one portfolio, portfolios. In some cases we went line by line; in oth- break it down by individual ers it was sampling,” Boyd explains. Since going into manager or even view it by production, he says, the solution has operated line item.” smoothly and nearly error-free. —Steve Boyd, Halyard Asset Management A Multisolution Approach On the other end of the solution spectrum, VSR Financial Services, a broker-dealer with a registered CashEdge is gathered from websites, our staff moni- investment adviser (RIA) division, is taking a hybrid tors any anomalies as it’s transferred into our portfolio approach to client reporting by leveraging multiple tech- account applications,” he explains, noting that reports nologies and vendors for its report aggregation stack. for all of the portfolio management applications are The first layer is comprised of two account aggre- based on custom templates designed by VSR. gating services, one for the broker-dealer side of the Despite the manual reconciliation tasks for RIAs, business and the other for RIAs. Adopted in 2005, Scruggs says, the net effect of implementing the aggre- 5 Steps to Maximizing Aggregation ROI

egardless of the type of report data, such as cause-and-effect plan- challenge just in terms of keeping up.” aggregation solution an organiza- ning,” advises Narey. 4. And regardless of what type of sys- Rtion pursues — in-house, hybrid or 2. Next, when considering new tools, tem you’re considering, sell the technolo- cloud — tips for success remain the ensure the accounting, compliance, gy to management as a solution that same, according to those who work analytical and reporting functions play goes beyond meeting client expecta- closely with financial firms. well together, stresses Clearwater tions. “One important question to pose to 1. “First, think about reporting from Analytics’ CEO Courty Gates. “You don’t your organization is: ‘What’s the value of the investor’s perspective,” suggests want to be responsible for stitching knowing our exposure on the day a Lehman Ben Narey, director of banking and capital together solutions,” he says. “When announces bankruptcy?’” says Gates. markets industry solutions for Microsoft. you’re making a presentation, you want “Another is: ‘What’s the cost if we don’t?’” “Develop a solution for the masses and the asset values in the accounting report 5. Finally, as new needs develop, avoid get it into their hands. The faster you can to match the values in the risk report.” point projects in favor of integrating get information to those making invest- 3. In addition, ensure your solution solutions into your aggregation solution. ment decisions, the better.” is agile enough to adapt quickly and “When someone comes to you with new This includes giving investors self-ser- remain up-to-date. “For example, the requirements, point back to the common vice options. “Instead of rows and rows pace of emerging compliance and architecture and be firm about fitting those of data, provide clients with tools that accounting requirements is picking up,” requirements into the established frame- allow them to harvest and manipulate says Gates. “There is a very significant work,” Microsoft’s Narey says. —A.R.G.

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 17 datamanagement

gation stack of solutions has significantly reduced man- “In addition to needing a data warehouse and a BI ual chores. Reports that took three weeks to deliver [business intelligence] solution, the key was not to dis- prior to adopting the aggregating solutions now are rupt the existing line of business systems or the front- delivered in seven to 10 days, he points out. office systems,” Bose relates. Additionally, he reports, And providing more timely reports has helped VSR the team would undertake the project as an incremental Financial Services grow its assets under management build rather than a budget line item. and under advisement, Scruggs insists. “Eliminating To meet all of the specifications, the alternative the manual chores allowed for growth without requir- investments tech team considered stand-alone solutions. ing any additional IT staff,” he says. “Stand-alones tended to be good in one area, such as Recently, VSR decided to improve report delivery operational reports or accounting reports or risk ana- by leveraging its newly implemented enterprise content lytics,” says Bose. “So by going that route, we would management (ECM) solution, OnBase from Hyland have copied the same data into multiple locations.” Software (Cleveland), Scruggs reports. “After we rolled But the team wanted a single repository, where oper- out ECM in 2009 for other types of documents, we were ations, front office, risk, compliance and MIS would all looking for a more efficient way to distribute reports,” work with the same data. “So when there is a change he says. “It made sense to post them in our ECM solu- in the position of the fund,” Bose explains, “we’d no longer spend hours or days reconciling the differences between each of those groups.” “The more time we Ultimately, the company decided an in-house solution save for our client- was the best answer. A Microsoft (Redmond, Wash.) facing force, the tool stack — including a SQL Server data warehouse, SQL Server Analytics and SQL Server Reporting Services more time they’re (SSRS) — was selected as a back end. And for the front providing advice and end, SharePoint was used to build portal user interfaces, gathering assets.” with Windows Presentation Foundation (WPF) rounding out the system for rich desktop presentations. —Chat Scruggs, VSR Financial Services Yet a SQL-enabled solution was initially met with skepticism, Bose admits. “A lot of people didn’t con- sider SQL Server sufficiently scalable for a data ware- house,” he recalls. To overcome this perception, the team quickly built a demonstration system within a development envi- tion, making the repository a one-stop shop for our reg- ronment. “In less than three months we demonstrated istered representatives and advisers. a solution to the business side,” Bose says. “They were “After all,” he adds, “the more time we can save for very excited. Then there was no stopping.” For the next our client-facing force, the more time they can be in year, according to Bose, the team took an iterative front of clients providing advice and gathering assets.” development and delivery approach, introducing new features and functions about every six weeks. Going Their Own Way And the solution has continued to evolve since its For the New York-based alternative investments divi- full launch in 2007. For example, data inputs initially sion at Credit Suisse, the answer to improving client were updated overnight, cutting aggregated report reporting was building an in-house solution. “Our organ- generation from weeks to a day. Then expectations ization is comprised of multiple lines of business, which began changing, Bose says — updates moved from operate independently with separate middle offices but overnight, to intraday, to hourly. Most recently, he share a back office,” explains Subhra Bose, formerly reports, they became intra-hourly. CTO of alternative investments at Credit Suisse. Going forward, Credit Suisse’s alternative investments “In the past, it took weeks to compile hundreds of division will work on report standardization. “They’re thousands of spreadsheets to get exposure in a spe- working on standardizing across funds,” Bose affirms. cific country, currency or asset type across all funds,” “Clients want to receive reports in a normalized form.” he says. “It was even challenging to compute our Meanwhile, the benefits of the system have piled assets under management.” up. “We’ve literally empowered fund managers with In 2006, Bose recalls, he and his team envisioned the capability to make more accurate investment deci- unifying and streamlining reporting across silos. First, sions,” says Bose. “Instead of manually generating he says, they surveyed the various lines of business reports, people are adding value to the business. And within the division to identify common workflows. the manual systems were very error-prone, so we’ve WS Then technology options were explored. reduced risk considerably.” &T

18 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 B:8.75” T:7.75” S:7”

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INSIDE THE BLOOMBERG MACHINE

Thirty years after it was founded, Bloomberg LP has woven its technology into the fabric of Wall Street’s front office. Superior customer service and rapid technology upgrades have generated a loyal customer base and billions in profits. Here’s an inside look at how Bloomberg pushes out new technology at a phenomenal pace.

By Greg MacSweeney @gmacsweeney

Photograph by Tony Vecchione

20 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 “We took a view during the turndown that it was a great opportunity for us to run some risk and to give up some growth — P&L growth, not product growth — to bring in new people,” says Thomas Secunda, founding partner and global head of financial products and services at Bloomberg.

F IT AIN’T BROKE, don’t fix it. The a more “open” policy. It is engaging with outside firms mantra applies to many things, and talking to the press (as you can see from this arti- including cars, bicycles and cle), and even has built a marketing department, which observers say didn’t exist until last year. kitchen appliances. It also applies to business plans. A Culture of Healthy Paranoia But something has been Although the Bloomberg terminal has grown and changing at Bloomberg LP, the expanded drastically since it first landed on two dozen desks at Merrill Lynch (an early Bloomberg investor wildly successful market data and first customer) in 1982, the core product remains services provider that has followed the the same: market data, news and analysis in one place, Isame basic business principles — inno- often faster than the competition. And the paranoia that drove the cofounders — Bloomberg, Tom Secunda, vation and customer service — since it Charles Zegar and Duncan MacMillan — to continually was founded. develop new features to stay ahead of competitors still Bloomberg LP has not-so-quietly built an empire lives on in the organization today, according to employ- that has woven its way into the fabric of Wall Street. ees, who speak of this feeling of paranoia in a positive But, until recently, the firm has been an inward-looking, way, as a healthy motivator. closed-to-the-outside-world organization that relied on That motivation has grown the terminal, or, “the its own pool of talented professionals to develop tools Bloomberg,” into a product with approximately 30,000 and features for its customers. Bloomberg rarely functions that are used by slightly more than 300,000 engaged other companies (except its own clients), its subscribers, most of whom use only a small fraction of executives never spoke publicly, and it didn’t market the available tools. “There’s a healthy paranoia that peo- itself like most of its direct competitors do, with general ple who work at Bloomberg seem to have that keeps advertising. Instead, Bloomberg spent time developing them looking over their shoulder,” says Domenic Maida, strong relationships with clients by providing superior global business manager, Bloomberg Professional serv- customer service on its primary product, which has ice. “It keeps their hearts beating faster when they think served it so well since the company was founded: the about solving problems and making sure that they are Bloomberg Professional service, or, as it’s more com- first to market with the solution.” monly known, the Terminal. People outside the firm also see the same positive And this inward-looking strategy (with a healthy dose culture. “There is a level of paranoia, in a good way,” of paranoia) has worked. Since Bloomberg’s beginnings says Sang Lee, founder and managing partner of research in 1981, when Michael Bloomberg used his $10 million and advisory firm Aite Group. “From an outsider’s per- Salomon Brothers severance check to found the com- spective, that is probably what drives them to innovate.” pany, it has captured about one-third of the multibillion- That feeling is shared among the technical staff, dollar market for delivery of financial data, news and according to Shawn Edwards, chief technology officer tools/applications for financial professionals. The com- for Bloomberg LP. “They’re often the ones working pany brings in nearly $7 billion in annual revenue, with through the night,” he says. “They’re the ones who are 85 percent originating from the Bloomberg Professional kept up coding and thinking about getting to market, and terminal service. That’s not to say Bloomberg relies on that’s a huge factor of what we do — getting our ideas its original technology — rather, the company is, pardon out to market first and responding to our customers fast.” the expression, a machine in terms of releasing new Noting Bloomberg’s ability to rapidly deploy new products and generating revenue. products, some of its competitors have begun to offer Today, however, Bloomberg seems to have adopted similar responsiveness. Acknowledging that previous

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 21 coverstory

Bloomberg’s Manhattan headquarters has a sleek, mod- ern look, with plenty of glass, artwork and natural light.

Thomas Secunda, founding partner and global head of financial products and services at Bloomberg LP, has been with the company every step of the way. Like other Bloomberg employees interviewed for this article, Secunda prefers to talk about the product rather than himself; he demos new features on the terminal when answering questions about the company; continually talks about clients’ needs; and, yes, is tightlipped about what new features are in the works for the terminal. During a nearly two-hour interview that spans a variety of topics, it becomes evident that Secunda’s drive and enthusiasm for his job have not waned after 30 years with the company. But again, he prefers to downplay the internal workings of the company and, instead, tries to steer the conversation back to clients’ needs and his company’s products. When discussing the Bloomberg Professional service, his eyes light up. Pressed about how Bloomberg maintains its focus on customer service and innovation and about how it helps new hires to understand the Bloomberg way, however, and Secunda mentions the internal training programs. “Mostly, we hire new people and put them through pretty extensive training programs both on the sales side and on the programming side, so that they can learn the way to do things here,” Secunda says. He versions of his firm’s products saw updates yearly, notes that although Bloomberg is a global company, Harry Tempkin, head of equities in the Americas for most of its employees are based in the United States. Thomson Reuters, says the provider’s new platform, Just having access to a good talent pool, though, is Thomson Reuters Eikon, features updates at least every different than making the right decisions on who to hire. month. “Customers on Eikon receive new releases “A great technologist can do things that an average tech- every month. The desktop management is very light nologist can’t even fathom doing,” says Bloomberg’s and it is easy for us to add new capabilities,” he says, Maida. “And things an average technologist can do in adding that Eikon’s hosted platform resides in the six months, they can figure out how to do it in a week.” cloud, which makes it easy to send out new releases. At Bloomberg, CTO Edwards adds, the company The “paranoia” at Bloomberg has developed into a views technologists differently. “A lot of technologists top-down culture of innovation that helps the company in this sector and this business are viewed as an expense improve, outsiders say. “The culture at Bloomberg fos- or viewed as a cost,” he asserts. “Bloomberg is different. ters innovation,” says Yanay Lehavi, a Bloomberg client Our technologists are making the product, so they’re and EVP for front office and trading applications at the heart of the company. It’s a different mind-set.” PIMCO, the global asset manager with $1.2 trillion in assets under management. “It starts at the top and Growth During Crisis and Beyond moves down. At Bloomberg, everyone has the enthusi- During the previous two years, when most of the industry asm, the knowledge and the engineering acumen, and was hunkering down, slashing costs and laying off work- that is rare in a large company.” ers, Bloomberg did what it often does: It tacked the other Although there is no single factor that allows way. The firm began one of the biggest periods of growth Bloomberg to maintain such a high-quality workforce, it has ever seen, in terms of employees and product observers point to Bloomberg’s preference to hire recent development, according to Secunda. “We took a view college graduates, an extensive training program and an during the turndown that it was a great opportunity for internal drive to constantly improve. “I don’t think they us to run some risk and to give up some growth — P&L have smarter people than everyone else,” says Bob Iati, growth, not product growth — to bring in new people,” partner and global head of consulting at Tabb Group. “But he says. “So we added a lot of technologists, making it their people are certainly focused on the right things.” our biggest growth years ever. We added technologists

22 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 from the Street and a lot of people out of college.” Currently, Bloomberg has 12,900 employees, of “I don’t think they which Secunda describes approximately 3,000 of them have smarter people as research and development staff. “And it seems like than everyone else. we’re always hiring because there are opportunities But their people are here,” he notes. In March, Bloomberg announced plans certainly focused on to hire an additional 500 research and development the right things.” professionals in 2011 alone. —Bob Iati, Tabb Group Likewise, when other vendors were slashing rates and renegotiating contracts to retain clients, Bloomberg found a way to create added value for customers. The company started to show clients how to get more out of For instance, SunGard’s MarketMap, a competitive the Bloomberg platform, often at a competitor’s expense. global market data offering, also allows clients to turn For instance, a Bloomberg user may have had a off the real-time data capability to cut costs.) different provider for certain types of data or types of Still, Bloomberg and other market data terminal ven- analytical tools, not knowing that Bloomberg offered dors face ongoing market pressures. According to Aite that capability in its 30,000-function library. As the Group’s 2011 Capital Markets IT Spending Study (see result of a little client education, when the client related article, page 26), 15 percent of CIOs plan to cut switches more functions to the terminal, Bloomberg spending on market data terminals this year. Bloomberg expands its penetration while saving the client money and its largest competitor, Thomson Reuters, are moving (and not costing Bloomberg a dime). And Bloomberg’s to counteract the trend by launching new trading-focused competitors lose out. services, Aite says (see related sidebar, below). “We saw the downturn coming at the end of ’07 into ’08,” Secunda relates. “We went to our customers More Than a One-Trick Pony? and said, ‘Look, you could be a lot more productive Critics note, however, that Bloomberg remains primarily with the Bloomberg.’” a one-trick pony, as almost all of its revenues — again, He adds, “They were worried about keeping their 85 percent — come from the Bloomberg Professional jobs and keeping their firms profitable. So we came up service. But Bloomberg does have an extensive media with something we called Bloomberg Value Solutions. network, including hundreds of journalists around the Instead of going out and talking to our customers about globe, a TV station and Bloomberg BusinessWeek. And taking more [products], we talked to them about how Bloomberg’s news organization is growing at a time they could actually save money by doing more on the when the rest of the media industry is shrinking. Bloomberg terminals they already had [on their desks].” Nonetheless, Bloomberg is aware of the criticism, Bloomberg also helped customers find other sav- and this may be why it is a more open organization ings. For instance, exchanges charge for real-time data today than just two years ago, say observers. Currently, and the costs are paid by Bloomberg’s clients. Bloomberg is expanding into the legal arena with the Bloomberg was able to monitor which clients were not launch of Bloomberg Law to provide legal analysis tools using the data and shut off the feed. “For a big firm, we and research. And in 2010, stepping far away from its could save them around a half-million dollars,” Secunda core financial news business, the company launched boasts. “We did that on our own with our own initiative, Bloomberg Sports Baseball along with Bloomberg and we saved our customers money.” Fantasy Baseball products, which take some of the data (This type of service is not unique to Bloomberg. analysis tools developed in financial services and offer

Thomson Reuters Looks for Its Own Niche ven as Bloomberg has continued comes in a slick new, browser-based Professional service. Thomson Reuters to innovate its terminal, Thomson interface that delivers a Google-like representatives acknowledge that Eikon EReuters, Bloomberg’s largest searching experience. probably won’t lure many entrenched competitor, made major enhancements By leveraging search tools in a web- financial professionals who have inte- to its product portfolio when it launched familiar window that includes market- grated Bloomberg Professional into Thomson Reuters Eikon in September moving news and analytics alongside their workflows. Instead, company rep- 2010. Eikon, primarily a combination of one-click trading, the Thomson Reuters resentatives say, Eikon is aimed at new three legacy Thomson and Reuters plat- platform, currently being deployed to financial professionals and companies forms — Thomson 3000 xtra, Thomson clients, creates a user experience that is working off of disparate data sources ONE Analytics and Reuters Station — vastly different from the Bloomberg and platforms. —G.M.

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 23 coverstory

them to the sports world’s equivalent to quants. small shops attest to Bloomberg’s attentive service. Aite’s Lee insists that Bloomberg’s business plan is “They will dedicate resources to you,” says Chris sound, noting that the industry (and the competition) O’Connor, partner at the hedge fund RedMile Group. “I is always watching to see what Bloomberg will do next. am a trader at a firm with four Bloomberg users,” “Certainly Bloomberg has shown recently that it is not O’Connor notes, but he can get support at anytime. “You afraid to do new things,” the analyst says. “And they can’t say that about a lot of other organizations.” certainly have the cash to do it.” Further, the company’s responsiveness isn’t limited According to Lee, outsiders have wondered why to customer service. New tools, features and function- Bloomberg hasn’t made a larger push into the fixed- ality are regularly developed for clients, often with sur- income electronic execution space. “People thought prising speed. “Bloomberg is very receptive to Bloomberg could provide a fixed income execution suggestions,” says O’Connor. “I come across things that venue on top of [its data and tools],” he explains. “There they may not anticipate, since they aren’t doing what I are opportunities in the fixed income electronic market. am doing day to day.” If there is someone who could do something innovative The new functions sometimes aren’t perfect. “There in the fixed income side, I would not count out are dozens of functions that they start with, they refine Bloomberg.” Bloomberg already offers Bloomberg them,” says Michael Kotlarz, technology equity analyst Fixed Income Trading (FIT). with Oppenheimer Funds and a Bloomberg client. Another area where Bloomberg could grow would be “Maybe the functions aren’t perfect when they first the low-latency market data infrastructure market, as well come out, but they refine them and make them better as the derivatives data space, comments Tabb Group’s all the time. … Bloomberg listens and gets it right.” Iati. “A number of companies have stepped up on the In fact, Bloomberg’s responsiveness to client low-latency market data infrastructure side,” he says. requests has many clients viewing Bloomberg as an extension of their IT organizations. RedMile’s O’Connor certainly views Bloomberg as a technology resource. “A great technologist “A lot of the requests [for functionality], I wouldn’t even can do things that an make ... to another data vendor because I know they average technologist wouldn’t deliver,” he says. When Bloomberg rolls out a new service, ideas for can’t even fathom the terminal often start with clients and are developed doing.” and implemented by Bloomberg, according to Secunda. —Domenic Maida, Bloomberg “We prototype the product and then we put it out in front of our sales force and in front of our customers as an alpha version,” he says. “We then go and take what we’ve learned and build a beta version, and we go back out again and test it. Sometimes those testing periods are “That was an area where Bloomberg had an opportunity measured in months, sometimes in weeks, sometimes in to step in, but they didn’t. They may still do so, and wher- days if it’s a specific, small function coming out.” ever they look to expand, they have a great opportunity.” Bloomberg’s rapid development methodology (Bloomberg does offer B-Pipe, a consolidated, real-time, “allows … our developers to quickly build applications platform-agnostic high-volume market data feed.) within the Bloomberg environment,” Bloomberg’s Edwards adds. “I have built things in front of customers Speed & Response in a meeting here at Bloomberg, and at the end of the Despite a perceived lack of other products, meeting, I have had a working prototype, maybe with Bloomberg’s “one-trick pony” certainly has legs. The dummy data, but a prototype of the concept that we’re product is so compelling, say observers, because of all talking about.” Bloomberg’s “insanely good” customer service. For Giving clients what they want, and doing it quickly, instance, numerous buy-side customers, from head is part of the goal, notes Bloomberg’s Maida. “It’s great traders to technology leads, speak of how their when we’re able to do that for customers,” he relates. Bloomberg representatives will drop everything for “It does blow them away, and that’s the kind of service them. In fact, one client jokes that it’s difficult to keep we want to provide.” his Bloomberg rep out of his office. “It is hard to fathom a day without at least one Bloomberg representative Perfection Has Its Price walking around,” says PIMCO’s Lehavi. Providing great customer service, an integrated plat- The focus on serving the customer is not limited to form and access to thousands of functions does have a the largest customers, such as PIMCO, where you would cost, and the cost is relatively high. Numerous clients expect Bloomberg to have a regular presence. Even cited the price as a downside of using the Bloomberg

24 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 Professional service. “Price is always a complaint,” says encrypted e-mail service. The network Aite’s Lee, noting that users will pay it because of the boasts 2.4 million people profiles, IB traf- “Bloomberg is depth of the product and its integration capabilities. fic of 12 million messages per day and like Apple — Although Bloomberg doesn’t publicly disclose its cost 200 million Bloomberg messages per day. per user, each user pays about $1,700 per month (per Bloomberg’s communication capa- it may cost seat), or roughly $20,000 per year, for access to bilities are mainstream in the financial more, but Bloomberg Professional. Tradebook charges a commis- community, says Glenhill’s Hoenig, who they know sion for executions, and some other Bloomberg Trading notes that a good portion of his commu- what their Solutions require an additional fee. nications are through IB and Bloomberg Thomson Reuters prices its product differently, Message. “Bloomberg works with AOL, customers according to Thomson Reuters’ Tempkin, who com- and it makes my workflow more effi- want.” pares Bloomberg Professional to a premium subscrip- cient,” he explains. As a reference, —Seth Hoenig, tion. “We believe in offering different levels, or flavors, Hoenig says four of the six panels on his Glenhill Capital of service for different clients,” he explains. “You don’t workstation are filled with Bloomberg have to get the full premium package if you don’t want information and tools. it. If you just want equities, you can have it.” “People love Bloomberg because the Seth Hoenig, head trader at Glenhill Capital, a community of Bloomberg users is so long/short hedge fund with $1 billion in assets under strong,” Tabb’s Iati adds. “Many of the other management, says, “Bloomberg is expensive, and every- tools on the desktop may be interchange- one knows that.” Hoenig notes that he’s been using able with other providers’, but you can’t get Bloomberg since his college days, when he used the the community elsewhere. If you are on the Bloomberg terminal at his university to access real- community, there are very few people you time market data. can’t reach. There is no price tag you can But, “If you have a good painter, you know it is put on that. Even with the social network- worth it,” he continues. “Bloomberg is like Apple — it ing apps, the direct Bloomberg community may cost more, but they know what their customers is the strongest connection to the industry, want. They are a business that gets it. It is a high-quality especially on the buy side.” product and it has tremendous value.” In essence, Bloomberg is now part of According to Aite’s Lee, customers are willing to the financial industry culture. “Bloomberg is now part pay the high price because information is integrated of my daily life,” Glenhill’s Hoenig says. across Bloomberg products. “The tight integration And that sentiment is commonly echoed by the between data, workflow and analytics is all there,” he sources for this story. “People who use Bloomberg think says. “And once you get into specific applications, it’s the best thing since sliced bread,” relates Aite’s Lee. whether it is the OMS or EMS, all of the elements come It’s hard not to wax poetic about the firm’s impact together. It’s a compelling bundled package that isn’t on Wall Street since it started 30 years ago. It has leveled easy to find elsewhere.” the playing field, in many ways, by providing informa- Experts say Bloomberg doesn’t have the integration tion to investors who, as strange as this sounds today, problems that are common with other technology were completely in the dark back in 1981. Without providers because the company develops all of its own access to information, traders and investors had to rely technology, while many other companies grow through on others — a broker or a public company itself — to acquisition. “That is one of the added values of doing it get the information. Providing that information — cou- internally,” says Tabb Group’s Iati. “They don’t have pled with trading tools and analytics — to anyone who the integration problems. There may be better or dif- wants to pay the fee was groundbreaking. ferent tools out there, but everyone understands the Bloomberg’s Secunda is certainly aware of the com- Bloomberg box, and it is all in one place.” pany’s legacy and how it has changed the markets. “The role that Bloomberg has played in bringing transparen- The Original Social Network cy and clarity to the market is something I’m very proud One of the major hooks of Bloomberg Professional of,” he says. “It’s helped the market, because there are is gaining access to the service’s network of users. many instruments that you couldn’t trade unless there Long before social networking became a household was somebody that could give you analysis, descrip- phrase, Bloomberg developed one of the most tions or news on them.” focused, extensive and easy-to-use professional net- Secunda also is proud of the people who make up works on the planet. To this day, access to 300,000- the company. “I’m immensely proud of the culture of plus users is just a few keystrokes away through the people and the company,” he adds. “The product is Instant Bloomberg (IB), Bloomberg’s secure version wonderful, and I’m very proud of that as well. But the WS of instant message, and Bloomberg Message, an future is the people who sit around here.” &T

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 25 specialreport IT SPENDING

The Year of Compliance and the Cloud Capital markets firms will spend more than $44 billion on tech - nology globally in 2011, a welcomed 6 percent jump over 2010 spending, according to Aite Group.

By Melanie Rodier @mrodier

S CAPITAL MARKETS FIRMS GRAPPLE with the challenges of comply- ing with Dodd-Frank’s plethora of rules while continuing to expand into new asset classes and emerging markets, they will increase their IT spending globally by 6 percent this year, according to Aite Group. The research firm expects Wall Street firms to spend $44 billion on technology in 2011 — up from an anticipated $42 billion in 2010 and $39.7 billion in 2009. Wall Street & Technology helped Aite gather responses from financial services tech- nology executives for the study.

With Wall Street firms facing a year of new and still fluctuating regulatory requirements, compliance will Abe a huge focus for IT executives in many technology spending areas, according to Adam Honore, research director at Aite Group and author of the report. In a sign of the times, in 2010, only 10 percent of CIOs ranked compliance as their top priority; in 2011, 25 percent of CIOs ranked it No. 1. “Everyone has to install new checks and balances, particularly in light of the Flash Crash, Dodd-Frank and CFTC regulations around the banning of naked access, as well as the risk of fat fingering,” Vikas Shah, managing director, Rosenblatt Securities, tells WS&T in response to the survey’s findings. Behind compliance, client reporting also ranked at the top of the list in terms of firms’ priorities, followed by information security, systems integration and risk management systems. Reference data man- agement, which regulators will be eyeing closely in light of the Dodd-Frank financial reforms, also made a comeback this year. “Clients want more real-time reporting. Any hedge fund manager and prime broker will say that,” Aite’s Honore says. “Everyone wants more reporting on the shoulders of crisis, as well as market competitiveness.”

26 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 Ian Yankwitt, president of White Plains, N.Y.-based Tortoise many large corporations. It’s Investment Management, which has $275 million in assets under surprising as a lot of small “Everyone has management, says client reporting is a primary focus for his firms are adopting it faster to install new firm — but he stresses that it always has been that way, ever than large firms,” says checks and since he founded Tortoise in 2004. “Client reporting has always Rosenblatt’s Shah, whose firm been our single biggest IT spend and our third biggest spend was one of the earliest balances.” behind salaries and rent,” Yankwitt relates. “Risk management adopters of the cloud in the —Vikas Shah, and compliance have always been at the heart of the business. capital markets, first delving Rosenblatt Securities We’ve focused on it always. into cloud computing in 2008. “Most of the noise we hear about how new regulations will “Our mandate from our drive up compliance costs and will be burdensome, and talk of CIOs is to justify why we the draconian effect on small businesses, is making a mountain would want to buy software or out of a molehill,” he adds. “It always has [been that way].” equipment outside the cloud,” Perhaps more than Dodd-Frank, it was the Lehman Brothers he continues. “Cloud is very debacle that led many firms to boost their investment in risk effective for storage, comput- management, says Rosenblatt’s Shah. “We’ve seen it go up across ing, for administration — all the board, whether it’s market risk, credit risk or operational risk, those things can generate large counterparty risk, and collateral risk management. If you include savings for small firms that all this in risk management plus the banning of naked access, all don’t have as many resources. that spending is going up, and I can relate to that,” he comments. While bigger companies have Other big movers in terms of IT spend include imaging and concerns over security, there document production, which jumped six positions from 2010 are solutions that make the cloud much more secure.” to reach No. 7 this year, and wealth management and mobile The fact that cloud computing is quickly gaining traction in solutions. On the flip side, trade analytics dropped eight posi- the capital markets, however, means that regulators likely will tions, while EMS systems tumbled from fourth in 2010 all the be drawn into the conversation about the cloud and information way down to No. 16 in 2011. The Aite study also revealed some notable first-time pri- Top 2011 Technology Priorities for Capital Markets Firms orities, including colocation, crossing engines and net- Client Reporting 81% work connectivity. Compliance Solutions 81% Information Security 76% Looking to the Clouds Systems Integration 76% In addition to compliance, Risk Management Systems 76% 2011 IT spending largely will Global Trading & Settlement (Back Office) 62% be defined by cloud comput- Imaging & Document Production 62% ing. According to the Aite Wealth Management Advisor Solutions 57% research, the cloud is now Wealth Management Home Office Solutions 57% firmly on the radar of Wall Portfolio Valuation 57% Street firms (see related Mobile Solutions 52% chart, next page). In 2010, Network Connectivity 52% half of all respondents indi- Order Management System (OMS) 48% cated they had no plans to Reference Data Management 48% explore cloud computing; in Trade Processing (Middle Office) 48% 2011, only 27 percent of CIOs Execution Management System (EMS) 43% will continue to ignore the OTC Derivatives Processing 43% cloud. Meanwhile, 46 per- Colocation 43% cent of participants said they Crossing and Internal Matching 38% are exploring the potential of Corporate Actions Processing 38% cloud computing, up from 33 Market Data Terminals 38% percent in 2010, and 18 per- Market Data Feed Handlers/Ticker Plant 33% cent currently are imple- Pre-/Post-Trade Analytics 33% menting a cloud strategy, up Market Data/Time Series Data Storage 29% from 10 percent. Note: Results reflect the percentage of firms that ranked each technology “The usage of cloud com- Source: Aite Group area among their top 10 IT priorities for 2011. puting is going up across

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 27 specialreport IT SPENDING

security, says Aite’s Honore. “They’ll have to see what is and isn’t acceptable behavior. And that discussion should Cloud Computing start happening sooner rather than later,” he contends. Implementation Plans Data Terminals Pay the Price Q. Where are you in your implementation of cloud computing? In terms of cost-cutting, market data terminals is the top category in which firms are reducing spending, with 15 percent of the CIOs in the study reporting spending Exploring the concept We know what we cuts on the technology. Data consumption is rising dra- and determining want and are defining matically, but data terminals are a very expensive prod- what we our requirements 9% uct, Rosenblatt’s Shah notes. want 46% “As such, there is a growing trend toward unbundling,” he explains. “Rather than paying $2,000 a month for all you can consume per terminal per seat, lots of firms are opting for a more streamlined version. We know You pay for what you need.” what we want In his report, Aite’s Honore points out that Bloomberg and are already and Thomson Reuters are both aware of the downward implementing it pressure and are aggressively looking to shift their busi- 18% nesses more into the electronic trading space to counter the decline in data terminal demand. For the second year, Aite Group asked CIOs in its sur- Don’t plan to go there 27% vey to identify the key influencers of technology-buying decisions. And for the second time, business lines ranked Source: Aite Group highest in terms of influence, with 83 percent of CIOs indicating the business’s significant influence. While CIOs ranked their own organizations’ influence as nearly iden- ence engineers have moved up from No. 11 in 2010 to No. tical to business units’, the IT group’s influence declined 5 in 2011. “User experience specialists are in dire need at from the previous study. Meanwhile, operations moved many firms, whether they know it or not,” he says. up two spots from 2010, and finance shed three positions. In terms of staffing, 2011 looks nothing like 2010, A Nod to the Vendor Community according to Honore. In 2010, he says, C++ developers Taking stock of the survey, Honore says he is perhaps most dominated hiring, followed by network specialists, Java impressed by the fact that the vendor community is finally developers and .NET developers. In 2011, virtualization “really on top of what’s occurring in the CIO’s mind,” sug- specialists rank highest in hiring, followed by data ware- gesting that 2011 will be a vintage year for vendors. “They’re house developers and business analysts. not waiting for user demand to start development,” he Honore adds that he is excited to see that user experi- adds, noting that third-party applications are making a sig- nificant push against internal development in 2011. In 2010, 38 percent of applications were being devel- Global Capital Markets oped by vendors, according to Aite research; in 2011, 58 percent of new applications will be vendor-provided, the Technology Spending first time vendors have crossed the 50 percent barrier. Projected Global IT Spending in the Securities and Further, the outsourcing development pendulum is Investments Industry (US$ Billions) swinging back overseas, Honore indicates. In 2010, IT $51.0 services companies developed 2 percent of applications; $47.2 $44.1 in 2011, they will develop 7 percent of applications, $41.8 $41.6 $38.1 $39.3 according to the report. And Honore recommends that CIOs consider more managed solutions. “We are seeing strong offerings from both large and small providers,” he tells WS&T. Still, with all the vendor consolidation that has occurred in recent months and more expected this year, Honore urges capital markets firms to really pay attention when 2007 2008 2009 2010 e2011 e2012 e2013 selecting a vendor. “There have also been deals blowing

Source: Aite Group up due to bad financials or ownership arrangements,” he WS notes in the report. &T

28 WALL STREET & TECHNOLOGY www.wallstreetandtech.com APRIL 2011 ADVERTORIAL

The concept of data management is relatively simple. Firms • Establishing processes for cleansing, validating and need access to high-quality, relevant data, provided in a timely enriching data and cost-effective manner. Delivering on this concept, however, • Managing exceptions is challenging. While capital markets fi rms are keenly aware Establishing an effective governance framework of the problems – and opportunities – presented by data • Defi ning appropriate service levels management, the typical approach is to address each issue • Identifying owners of data and assigning responsibility as it demands attention, rather than as an integrated master • Defi ning the strategy and plan of attack for desired data management (MDM) effort. New technology solutions improvements may help solve specifi c concerns, but many fi rms neglect the Bringing benefi ts of improved data management to internal non-technical aspects of data management, including culture, and external clients communications, and governance, that can make or break the • Using improved data to enhance analytics success of an overall program. • Using analytics to improve key operating functions such as Good Data Management Starts with Good Data reporting and compliance One of the most important – and most overlooked – elements • Identifying client needs and providing appropriate service of good data management is data quality. Often, companies fi nd or product offerings that their organizational structures work against them. Many Reap the Rewards of Good Data Management fi rms still maintain a decentralized approach to gathering and Data management extends beyond technology. A holistic storing data. Combined with minimal standardization of data and approach to data management coordinates people and a lack of effective governance, this approach can lead to a high business processes as well as technological innovation. When exception rate—as much as 15 percent of data purchased from improved data is the basis for advanced analytics, fi rms are outside vendors, by some estimates. in a stronger position to establish and maintain competitive Firms should keep four guiding principles in mind to establish advantage in an extremely challenging market environment. and maintain high quality data: To read more about this topic or to contact us, visit 1 - Data should come from multiple sources. No single www.accenture.com/datamanagement source of data is of high enough quality to be relied upon exclusively. 2 - Data cleansing requires a “four eyes” approach. When About the Author: Paul Obrocki is Accenture’s Global Data correcting data problems becomes an operating or process Management Lead for Capital Markets. Paul issue, good data governance dictates that at least two sets of has over 25 years of experience in information eyes – the person who is making the change, and an expert in technology and fi nancial services, and was that type of data – review and sign off. the architect and delivery lead for Accenture’s 3 - Data quality should be measured. Many fi rms try to multi-client managed reference data service. measure data quality in terms of the potential impact of errors His expertise in this area has helped to position Accenture as a to the business. Rather than trying to measure the cost of bad preferred partner to the fi nancial services industry, providing a data, fi rms should be able to objectively evaluate data quality, wide range of capabilities in the areas of Reference Data, Master with analytics to track improvement over time. Data Management and Data Governance. 4 - Manage change centrally. Data governance is not solely an issue of technology; it is a business process that needs equal input and involvement from the business units. Rather About Accenture than establishing a number of different groups, each with its Accenture is a global management consulting, technology own governing principles, one central group – with appropriate services and outsourcing company. Combining unparalleled representation from all key business units and functions – should experience, comprehensive capabilities across all industries take responsibility for how data should be received, organized and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with and delivered. clients to help them become high-performance businesses Integrate Your Approach for High Performance and governments. Achieving high performance in data management is a complex, interdependent undertaking. A comprehensive approach begins with a defi ned plan that includes a series of steps, building momentum as business units understand the results from initial efforts. The typical sequence of events might include: Assessing the current state of data management • Identifying sources of reference data and client/entity data

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To learn more about sponsorships contact Felissa Kaplan, Sponsored by: Director of Sales, [email protected] or 212-600-3171. Event producer reserves the right to deny a endance to any registrant. This event is not open to vendors or consultants. industryvoice Preparing for Disaster — What Every Manager Should Know

ISASTER RECOVERY IS OFTEN nuity plan (BCP) in place. Large-scale disasters expose the viewed as the need for backup sys- quantity of organizations that are unprepared, while demon- tems to safeguard an organization’s strating just how damaging that lack of preparation can be. data. Here’s a little hint for the sur- The tragedies of Sept. 11, 2001, Hurricane Katrina, the vival of your company: It’s not just recent earthquakes in Haiti and Japan, and other major dis- about the data. asters have placed business continuity planning and disaster The IT and data elements of disas- recovery in the spotlight. But it is important to note that Dter preparedness are critical components to overall pre- localized disasters such as fire, and even brief disruptions paredness. In today’s technological and global environment, such as fiber cuts, can be equally damaging. A simple organizations rely heavily on access to their data, 24/7, and Internet virus or worm spread over a single laptop can bring any interruption of that access can be catastrophic to the your operations to a grinding halt. organization. And increasingly, this data not only is for inter- Industry standards and regulations, such as HIPPA and nal use, but also for use by business partners, vendors and Sarbanes-Oxley, also act as drivers for implementing solu- customers. The availability of this information literally may tions. These regulations are designed to protect organiza- mean the difference between a business’s survival and tions by enforcing the implementation of BCP plans. demise; it can reduce the impact of the disaster and shorten During a catastrophic event, many organizations are the recovery time. forced to put their BCP and IT disaster recovery infrastruc- In the information-hungry world we live in, reducing vul- ture into action. Many more organizations, however, find nerabilities of data access can impact an organization’s abil- that the lack of a plan or failover capabilities makes an ity to respond and the community’s ability to recover. Yet already difficult task insurmountable. In a hopeless situation, according to a 2004 survey by AT&T Corp. and the the presence of a detailed BCP plan can create hope. International Association of Emergency Managers, nearly While this type of safeguard is absolutely a necessity to one-third of U.S. companies do not have a business conti- protect valuable data and reduce the amount of time your organization will need to recover from an incident, About the Author this is only part of the solution. A true disaster plan goes far beyond backup servers and drives. Adam Montella is the VP for homeland secu- rity and emergency management for Animus Start With the Planning Process Solutions, a management consulting and tech- nology services company. He has more than Again, it’s not just about the data. When disaster 25 years of direct homeland security and emer- strikes, what plan does your organization have in gency management experience in government place to communicate, both internally and exter- and private industry. Montella most recently nally? How will your organization ensure it can get was appointed to the Federal Emergency your personnel to your hot site? An IT disaster Management Agency’s (FEMA) National Advisory Council’s (NAC) Public Engagement recovery plan is only a small part of an overall busi- & Mission Support Subcommittee and the ness continuity plan. The most important aspects National Response Framework Working Group. of an effective disaster recovery is planning and training, which both need to be done far ahead of

APRIL 2011 www.wallstreetandtech.com WALL STREET & TECHNOLOGY 31 industryvoice

The time to the event. The planning process is process is still not complete. The plan is only good if every more important than the plan itself. employee (from the receptionist to the CEO) is aware of find out if General Dwight Eisenhower the plan and how to use it. One of the most critical steps in the plan will said, “Plans are useless; planning is the planning process is to test the plan. Short of an actual everything.” Planning across the disaster, the easiest and most efficient way to test a plan is work is not board has fallen on the shoulders through a training exercise. when people of one or two people within an An exercise serves as the “final exam” at the end of a plan- are standing organization. After months of writ- ning cycle, fosters communication between business units, ing the company’s disaster plan, trains users on the employment of a plan and their role in a in a pile they distribute the document to all disaster, and provides a “no-fault” environment to identify gaps. of rubble. departments, where it sits on book- The time to find out if the plan will work is not when people shelves collecting dust. The next are standing in a pile of rubble. Having the plan fail during the time the plan is looked at is when exercise is actually a good thing, as long as changes are imme- the disaster strikes. In this scenario, the plan is destined diately made, updates are communicated, employees are made to fail. But firms can avoid this fate. aware, and the plan remains a dynamic work in progress. Step 1 — Involve Everyone. Disaster planning must Step 4 — Putting It All Together (Don’t Forget the involve all stakeholders in the process. Just as data recovery People). The plan is developed, personnel are trained and takes into consideration different priorities and timeframes the plan has been tested. Then a disaster strikes and the plan for bringing systems back online, different priorities and still fails. Some plans have ignored or forgotten the most timelines exist for bringing services back to a pre-disaster important aspect of the disaster planning process: All disas- level. Additionally, it is critically important for government, ters affect people. Disasters leave victims in their wakes, and private industry and community organizations to plan some of these victims may be the very personnel organiza- together, as there is a reliance on each other for components tions were counting on for response and recovery. If the plan of response and recovery. hasn’t considered employees’ During a widespread disaster 4 Steps to an Effective personal and family needs during such as a hurricane, all stake- Disaster Recovery Plan and after a disaster, they will not holders will be in harsh compe- be there for the organization tition for the same limited 1. Involve Everyone when disaster strikes. supplies and resources, including 2. Plan for the Worst-Case Scenario If there is advanced notice of food, water, computers and 3. Train and Exercise the Plan the disaster, such as a hurricane clean-up services. The impact of 4. Put It All Together: Don’t Forget the People or blizzard, allow time for your the disaster, such as in New employees to address protection Orleans and Haiti, may be so of their families and property. widespread that local relocation may not be an option. Once all is safe on the home front, they are more likely to be Transportation (and fuel) options may be limited or nonex- available for their employers. After Hurricane Andrew struck istent for days or weeks depending on the disaster. All organ- south Florida, firefighters and police in Homestead walked izations must work together to survive the event. off the job or never showed up for work because their homes Step 2 — Plan for the Worst-Case Scenario. While you were damaged; their lives were in chaos. Once city officials can’t plan for every contingency when developing your plan, brought in crews to assist in the cleanup and temporary repair consider not only your organization’s vulnerabilities, which of their homes, they felt secure enough to return to duty. can include location, security threats, etc., but also your Also take into consideration the hardship on a family if company’s capabilities. Once you have determined the most you relocate your business operation out of the area. Your likely disasters to affect your organization and the impacts plan will only work if every member of your response team on your organization, the plan must be grounded in reality. is familiar with it and if post-disaster expectations and When you write your plan, consider the capabilities and roles are clearly defined. resources that exist today — not what you are planning Disaster planning is really about the process and less toward or will eventually purchase. about the technology for disaster recovery. The plan should That’s not to say that you shouldn’t build remediation serve as the framework and general direction to follow, but steps into the plan. Determine what resources will be need- it cannot take into account every scenario or contingency. ed to respond and recover based on the threat and vulner- There is no way to train for all disasters. ability analysis. If they don’t exist, the list will serve as a However, having a strong core plan with policies and road map for strategic and budgetary planning, or at least standard operating procedures (SOPs) to guide management indicate to senior leadership and shareholders what will and employees during a disaster will ensure your organiza- be required at the time of the disaster. Set expectations in tion’s survival. The disaster plan does not tell you how to do advance of the disaster. your job, but rather how to do your job in a compressed Step 3 — Train and Exercise the Plan. Even if the plan timeframe, under stress, and possibly without all of your WS is developed with the input of all stakeholders, the planning organization’s resources in place. &T

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ftl-ad-v2c.indd 1 3/17/11 4:53 PM perspectives LARRY TABB, SPECIAL CONTRIBUTING EDITOR

May 6, Sacred Cows and Doing the Right Thing

FEW WEEKS AGO the Joint CFTC- no liquidity. This process is blamed for many of Industry SEC Advisory Committee on the worst prints and broken trades of the day. pressures Emerging Regulatory Issues deliv- A trade-at requirement states that an order ered its recommendations on the can be internalized only at a price that is substan- to avoid May 6 Flash Crash. Some were tially better than the best bid or offer. The Joint preferencing Aanticipated, some pushed the envelope and oth- Commission defines “substantially” as a half-cent. restrictions ers were downright controversial. With penny spreads, this means that brokers and, and trade-at Since the traumatic Flash Crash of 2010 we more extensively, dark pools will be required to have witnessed the implementation of circuit match buyers and sellers at the mid-point for the rules will be breakers, the elimination of stub quotes and jaw- most competitive stocks, or shutter. intense. boning of market makers to provide liquidity While preferencing and trade-at requirements when it’s against their best interest. But we have impact brokers, they also impact exchanges. not seen any major market structure changes or Trade-at rules require exchanges, which can now rule modifications, and certainly nothing radical match an order at or better than the best proposed by the commission of either regulator. bid/offer, to route that order to the exchange The Joint Committee, on the other hand, rec- showing the price or provide price improvement ommended a 14-point plan that starts where the before the order is executed. The commission SEC and CFTC had left off, and it goes much also recommends extending the top-of-book further. The committee has recommended trade-through protection to subsequent book implementing a limit-up/limit-down system, layers, requiring exchanges to rout a larger per- more extensive market access rules (which the centage of their orders to other markets. SEC has also proposed), studying the impact of changing maker-taker pricing, reallocating infra- Uphill Battle structure costs by instituting cancellation rates, While trade-at and preferencing rules should be and looking at a more cost-efficient audit trail. researched closely, neither may see the light of But the largest and most controversial issues day. Payment for order flow, or preferencing, has in the proposal were the recommendations to been attacked from all ends, but at the end of the study the implementation of a trade-at rule as day, it provides retail brokers the ability to recap- well as ways to eliminate broker preferencing. ture revenues, enabling the “little guy” to pay low- If implemented, trade-at and preferencing rules er commissions. And while better execution costs would attempt to reduce the level of broker are wonderful, lower commission rates sell. internalization and dark pool matching volume Investors see $10 trades as better than $15 trades, and reinforce the idea of top-of-book advantage and $7 trades as better than $10 trades. within a fragmented exchange infrastructure. Meanwhile, though preferencing upsets retail Preferencing at its heart is focused on the brokers, trade-at strikes at buy-side traders, insti- execution of retail order flow. Currently almost tutional brokers and exchanges. Buy-side traders all retail market orders either are internalized by want to trade in the dark to keep information the broker or sold to wholesalers that internalize leakage to a minimum, institutional brokers it. This is often called payment for order flow. want to keep their dark pools to reduce execu- Some think preferencing breaches best exe- tion cost and exchanges don’t want to route a cution requirements because the order isn’t higher percentage of orders to other exchanges. exposed to the market; others argue that payment All and all, between preferencing and trade- for order flow supports retail brokers’ invest- at, the Joint SEC/CFTC Committee has upset vir- Larry Tabb is founder and ments in technology and low commission rates. tually all of the U.S. equity market professionals. CEO of New York-based TABB While both may be true, one wholesaler during While these rules may actually help the market, Group, a financial markets May 6 decided that it didn’t want to internalize industry pressures to maintain its sacred cows strategic advisory firm. when the market was in freefall, so it dumped will be intense — even if the new rules are the WS [email protected] thousands of customer orders into a market with right prescription to stave off another May 6. &T

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