The back office of Wall Street firms faces increasing demands as regulations tighten and transactions grow more complex. Ten trends will reshape the back office in 2010: 1) Intensifying regulations will drive changes; 2) Pushing for more transparency; 3) Adopting business intelligence for customer insight; 4) Relying more on outsourcing; 5) Using cloud computing; 6) Implementing straight-through processing; 7) Consolidating technology vendors; 8) Upgrading legacy systems; 9) Focusing on data quality; 10) Emphasizing risk management. Back offices must meet new demands while using the same or fewer resources.

2. SEC cracks down on Finding the true value IT spending rebounds
insider trading p.14 of trade ideas p.19 to $42B in 2010 p.24
January/February 2010
Back-Office
Transformation
Intensifying regulations and the
push for transparency are
driving 10 trends that
will reshape the
back office and
its technology
in 2010. p.26
Robert DeVault,
Director, Transamerica
Asset Management

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6. Wall Street & Technology
Cover Story Business Lines
Trading
19 Alpha Capture
Systems To boost
their commissions,
sell-side salespeople
increasingly are
communicating trade
ideas to clients via 19
so-called alpha capture
systems, which attempt to provide
performance metrics around the ideas.
But who’s benefiting?
The Rise 22 Unstructured
Data According to
Of the
researchers and a
growing number of
Wall Street firms, the
avalanche of unstruc-
Back Office tured text-based Web
content represents the
22
next frontier in algorithmic trading. The
With greater scrutiny on how ability to analyze news feeds and social
financial instruments are priced media could provide a very profitable
and cleared, the beleaguered source of alpha.
Photography by Mike Weimar
operations manager is about to
see his world turned upside-
down. Here are 10 trends that will
IT Spending
24 Tech Budgets Capital markets
transform Wall Street’s back
firms will spend almost $42 billion
offices in the next year. p.26 globally on technology in 2010,
recovering the 5 percent in IT spending
Robert DeVault, Director, that was lost in the rubble of the
Financial Reporting/Operations, financial crisis, according to Aite Group.
Transamerica Asset Management
Wall Street & Technology’s 2010 Reader Advisory Board 14 Close-Up
John A. Bottega, Chief Data Officer, Steve Rapp, SVP & CIO,
Can Insider
Federal Reserve Bank of New York AGI Management Partners
Trading Be
Joseph Ferra, Chief Wireless Officer, Steve Rubinow, EVP & co-CIO, Stopped? Under
Fidelity Investments NYSE Euronext pressure to prove it’s
on the job, the SEC is
John Galante, SVP & CTO, Prashant Sarode, VP Corporate &
, cracking down on
J.P Morgan Worldwide Securities Services
. Investment Banking Technology, Wachovia insider trading with 14
newfound zeal. TABB
Joe Gawronski, President, Derek Stein, Chief Technology Officer, Group’s Larry Tabb and
Rosenblatt Securities Barclays Global Investors GlobalRMC’s Yvonne
Pytlik discuss some of
Scott Ignall, CTO, Tim Theriault, President, Corporate &
the best practices
Lightspeed Trading Institutional Services, Northern Trust
firms can employ to
Robert Palatnick, Managing Director/ Timothy M. Tully Jr., SVP & COO, avoid being targets.
Technology, DTCC BNY Mellon Wealth Management
14
wallstreetandtech.com January/February 2010 5

7. Wall Street &Technology
Sections Online wallstreetandtech.com
10 Upfront All Things to All Investors:
Intelligent Enterprise: BNY Mellon Taps BI
For Customer Insight
Nasdaq Reveals Plans
For 2010
In this exclusive video interview, Head of Nasdaq
Transaction Services Eric Noll discusses the
exchange’s drive to make its transparent markets
more effective for all users by designing market
structures and order types that appeal to everyone
— from large institutions to high-frequency traders to retail investors.
wallstreetandtech.com/video/nasdaq-noll
10
Betting on Wall Street Digital Bonanza
In an effort to make the same invaluable technology news, trends,
SWIFT Restructuring Includes Layoffs
analysis and industry opinions that you’ve come to expect from
the Wall Street & Technology brand as accessible as possible, we’ve
16 Technology Economics created a downloadable version of our 2010 Capital Markets
Technology budgets may appear flat for Outlook issue. And throughout 2010 we’ll be rolling out exclusive,
2010, but there’s a tsunami of activity digital-only editions offering an enhanced, Web-like experience in
going on under the surface, says Rubin a convenient PDF format. Subscribe to WS&T’s digital editions and
Worldwide’s Howard Rubin. download your free copy today. wallstreetandtech.com/digital-edition
34 Industry Voice Winning the Low-
Outsourcing
Portfolio
Latency Arms Race
Management Millions of dollars can be made or lost on
Systems The tech- the Street in milliseconds. Accelerating
nology and capabilities Wall Street — the industry’s first fully virtual
of outsourced portfolio data latency trade show — features some
management systems of the capital markets’ leading low-latency
34
rival those of their experts discussing the latest technologies
installed counterparts, says and strategies that are driving change in
Advent’s Michael Lobosco. the ultracompetitive algorithmic and high-
frequency trading spaces. Find your edge. Check out Accelerating Wall Street today,
Data Management The middle office available on demand at techweb.com/wallstreet-virtual.
needs to take the lead in ensuring the
quality of enterprise data, according to Keep Running ...
Stuart Grant, Sybase.
Without Losing a Step
38 Perspectives Business disruptions can be costly. Is your
The pay czar, the banker tax, pending firm prepared? Business continuity planning
legislation, shareholder lawsuits and a keeps your business processes up and
popular revolt all are vying to restrict running when disaster strikes. WS&T’s online
Wall Street compensation, notes Special Financial Services Business Continuity
Contributing Editor Larry Tabb. But Briefing Center sheds light on how to
shrinking executive pay could have minimize the uncertainty of potential business disruptions, from risk assessment
harmful unintended consequences. and business impact analysis to developing and testing BC plans. Sponsored by
Eze Castle Integration. businesscontinuity.wallstreetandtech.com
From the Editor 8
Wall Street & Technology
In the Palm of Your Hand
Now you can get all of Wall Street & Technology’s unmatched
coverage of the capital markets technology sector delivered to your
mobile device. Point your mobile browser to wallstreetandtech.com
and you’ll automatically receive all of our online content optimized
11 for your handheld device.
6 January/February 2010 wallstreetandtech.com

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For Investment Professional Use Only. 520100.4.0

9. Volume 28, No. 1
VP/GROUP PUBLISHER
John Ecke 212.600.3097 jecke@techweb.com
EDITORIAL
Editor-in-Chief Greg MacSweeney gmacsweeney@techweb.com
Time to Pay the Piper Group Content Manager Les Kovach lkovach@techweb.com
Editor-at-Large Ivy Schmerken ischmerken@techweb.com
Executive Editor Penny Crosman pcrosman@techweb.com
Senior Editor Melanie Rodier mrodier@techweb.com
Special Contributing Editor Larry Tabb ltabb@tabbgroup.com
Associate Managing Editor Jon Schnaars jschnaars@techweb.com
T
Contributing Editor Howard A. Rubin howardarubin@gmail.com
HE BACK OFFICE. It doesn’t exactly sound like a place where ART
most people dream of working, but the back office comprises one Art Director Jim Lawyer
Associate Art Director Kristen Terrana
of the largest collective parts of the Wall Street machine. Designers Amelia Fabian and Igor Jovicic
BigYellowTaxi.com
Maybe our perception of the back office is incorrectly influ-
ADVERTISING SALES OFFICE
enced by its name — it sounds like a place where shady deals occur 11 WEST 19TH ST., 3RD FLOOR
NEW YORK, NY 10011
(the “back room”). Or maybe it’s just that nothing can measure up Director of Sales Felissa Kaplan 212.600.3171 fkaplan@techweb.com
Midwest/International Brian Keenan 516.562.5145 bkeenan@techweb.com
to the glare of the front office, where trades happen and the money is made. West Sue Ellen Wohlers 415.947.6146 sewohlers@techweb.com
Can you imagine Michael Douglas as Gordon Gekko in “Wall Street” presiding Northeast Robyn Forma 212.600.3118 rforma@techweb.com
PRODUCTION
over clearing and settlement operations? “We have 80 percent automated processing Account Coordinator Production Manager
Amanda Waller awaller@ubm-us.com John Polihronakis polihronakis@ubm-us.com
today. I want 82 percent by the end of the month!” It doesn’t quite have the sexiness AUDIENCE DEVELOPMENT
of the wheeling and dealing that goes on in other parts of a Wall Street firm. When Assistant Manager Adrienne Farquharson afarquha@techweb.com
For article reprints and e-prints, please contact:
Douglas wasn’t trying to wring more efficiency out of operations, his remaining time Wright’s Reprints
Brian Kolb 877.652.5295 UBMreprints@wrightsreprints.com
on screen could be spent lobbying for more funding and resources. List Rental
MeritDirect
But while lobbying for back-office resources may Anthony Carraturo 914.368.1083 acarraturo@meritdirect.com
not be the stuff of box office blockbusters, it is a very INFORMATIONWEEK FINANCIAL SERVICES
TechWeb CEO Tony L. Uphoff tuphoff@techweb.com
real activity for back-office managers, who will proud- VP and Group Publisher Vice President, Group Sales
John Ecke jecke@techweb.com Martha Schwartz
ly tell you that the clearing, settlement, transaction Editorial Director
mschwartz@techweb.com
Greg MacSweeney Event Director
processing, cash management, asset servicing and per- gmacsweeney@techweb.com Jennifer Iannucci jiannucci@techweb.com
Group Content Manager Event Manager
haps a dozen other functions that unceremoniously fall Les Kovach lkovach@techweb.com Mitzi Trafton mtrafton@techweb.com
under the back office’s purview make possible almost Webmaster
Vitali Zhulkovsky vzhulkovsky@techweb.com
Director of Marketing
Sherbrooke Balser sbalser@techweb.com
everything that happens on the Street. And, as we Associate Business Manager
Joe Donnelly jdonnelly@techweb.com
Director, Program Management,
Vertical Markets
Michelle Somers msomers@techweb.com
examine in this month’s cover story (“10 Back-Office
TechWeb – The Global Leader in Business Technology Media
Trends for 2010,” page 26), the back office is undergo- CEO Tony L. Uphoff
ing a transformation, responding to new regulatory Chief Content Officer and
Editor-in-Chief, TechWeb.com
VP, Editorial Director, InformationWeek
Business Technology Network
David Berlind Fritz Nelson
requirements and the business’s needs for more trans-
Chief Information Officer VP, Audience Marketing
parency, faster processing and a host of other demands. David Michael Scott Vaughan
Chief Financial Officer VP/Group Publisher, Vertical Industries
Despite these new demands, one back-office John Dennehy John Ecke
SVP and Content Director VP, Group Sales, InformationWeek
requirement ironically remains the same: the call to Bob Evans Business Technology Network
SVP, Light Reading Martha Schwartz
do more with less. The complexity of transactions Communications Group VP, InformationWeek Analytics
Joseph Braue Art Wittman
(think: derivatives) continues to increase, and more SVP, InformationWeek VP, Human Resources
Business Technology Network Beth Rivera
and more of these complex transactions pass through John Siefert
United Business Media LLC
the back office daily. Fortunately, Wall Street’s back-office organizations have done an
SVP, Strategic Development and SVP, Manufacturing
outstanding job meeting business demands, all while utilizing the same — or fewer — Business Administration
Pat Nohilly
Marie Myers
resources. Unfortunately, that recipe may be nearing the breaking point. WALL STREET & TECHNOLOGY
(ISSN 1060-989X) is published 6 times per year (Jan./Feb., April, June, Aug., Oct., Dec.) by
The only way that the back office can keep up with the changes in the business is to United Business Media LLC, 600 Community Drive, Manhasset, NY 11030; tel. 516.562.5000
United Business Media LLC, is a member of United News & Media. All rights reserved.
automate further. Unless firms want to throw bodies at the problem — which is expen- Periodicals postage paid at Manhasset, NY, and additional mailing offices. Member, Business
Publications Audit of Circulation.
sive and short-sighted — newer technology is needed. And last I checked, technology EDITORIAL OFFICES
11 West 19th St., 3rd Floor, New York, NY 10011 212.600.3000
cost money. While automation may not cost as much as hiring a battalion of clerks, SUBSCRIPTION INFORMATION
$85 per year in the U.S., $105 in Canada and $295 elsewhere (payable in U.S. funds).
upgrading the back office nonetheless will require a commitment from management. Single-issue 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. 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. COPYRIGHT 2001 UNITED BUSINESS MEDIA LLC.
RETURN UNDELIVERABLE CANADIAN ADDRESSES TO BLEUCHIP INTERNATIONAL, P.O.
BOX 255542, LONDON, ON N6C 6B2
PRINTED IN THE USA
Greg MacSweeney
Editor-in-Chief
8 January/February 2010 wallstreetandtech.com

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11. Trends & Analysis
Intelligent Enterprise: BNY Mellon
Taps BI For Customer Insight
O
BSERVERS HAVE BEEN predicting for years global strategic sales, away from Oracle to take the BI project
that Wall Street would make more use of busi- live. Beck says there were three goals for the project: to bet-
ness intelligence (BI) in its customer dealings. ter understand what clients were doing, to better cross-sell
But while BI software is widely used in the products and to grow revenue. “We had this great source of
capital markets for performance measurement and even for information in ... Siebel, but it was very hard to get that infor-
risk monitoring, it has yet to become commonplace in the mation out,” he relates.
areas of serving and selling to customers. After meeting with executives and salespeople to find out
BNY Mellon, however, has been using BI to augment cus- what types of visualized data would help them do their jobs
tomer relationships since 2007. It laid a foundation for BI when better, Beck and Garry’s team built reports and dashboards in
it deployed customer relationship management (CRM) soft- the Oracle BI software for the sales teams. “We were thrilled
ware from Siebel in 2002, when the financial firm was still Bank with the Oracle product because it integrated with what we
already had, but it didn’t provide the specific metrics we need,
so we built everything from scratch,” Beck recalls.
Not All Things to All People
But building one common BI platform for multiple groups
requires some compromise. “One of the things you accept when
you pursue a [single-platform] strategy ... is that you’re never
going to get everything each person wants perfectly,” Beck
notes. “If each line of business went its own way on its own plat-
form, they could customize the heck out of it and have exactly
what they want. But you would miss out on a lot because you
wouldn’t be coordinated. ... Our vision was that we’d rather sac-
rifice some customization to have everybody on one platform.”
This information sharing improves cross-selling and revenue-
driving activities, Beck contends.
Analytics available in the BI software, according to Garry,
include sales rep performance versus goals, customer activi-
of New York. “There was a need at our company to better coor- ties versus sales, why opportunities were lost or won and the
dinate and understand what our clients were thinking and doing impact of those results on revenue, and success rates/market
across our multiple products with multiple sales forces, and share (data is derived from salespeople’s input into the CRM
internally there was a need to cross-sell better,” says Erik R. system). Executives view dashboards on the system to under-
Beck, managing director, global strategic sales, BNY Mellon. stand who the firm is competing against, what’s in the
By 2004, Beck reports, every line of business at Bank of pipeline, why it won or lost particular client sales, and trends
New York was using the Siebel CRM platform. Then, in over months, quarters or years, he adds.
2005, business intelligence appeared on the firm’s radar. For the year ahead, Beck and Garry are focused on improv-
Illustrations by Kristen Terrana
“Business intelligence was always used for risk and rev- ing the system’s ease of use. They also plan to add more charts
enue reporting and other systems throughout the company, and graphs and to make the system more interactive. “Our
but it was never used for client insight sitting on top of CRM focus in 2010 will continue to be on helping people transform
systems,” Beck relates. Meanwhile, Siebel was bought by our business, to do something they didn’t do before, to better
Oracle and, after BNY Mellon considered other options, it compete against a competitor, to help offer solutions rather
purchased the Oracle Siebel BI technology in 2007. than products,” Garry says. “With the market as tough as it is,
A year later, the firm hired Edward Garry, who is now VP, that’s more important than ever.” ✧ —Penny Crosman
10 January/February 2010 wallstreetandtech.com

12. 2005. Cantor’s mobile gaming system was approved
by state regulators in October 2008, and in March
2009 it was deployed at Las Vegas’ M Resort.
“Our philosophy is to use the applications
we’re so versed with in financial trading and apply
them to gaming,” Amaitis says, noting that Cantor
Fitzgerald first rolled out mobile trading in 2005.
“We were the first to put U.S. Treasuries on a
BlackBerry in real time.” According to Amaitis,
components of eSpeed’s matching engines and the
BlackBerry trading application were rolled into
the handheld gaming device, known as eDeck.
Cantor is the principal on all wagers, so there
is risk involved in the venture. But the firm mon-
Betting on
itors its exposure with a risk management system that is
attached to its price making system. “It’s impossible to match
every bet against every bet,” Amaitis explains. “But you can
manage the probabilities of risk.”
Wall Street In sports wagering, the amounts wagered typically are
small, and the betting line can be hard to hold, Amaitis says.
“The way you do it is, you apply the mathematics of proba-
P
EOPLE OFTEN REFER to Wall Street as a casino. bility,” he relates. “We put 7 million permutations into our
But New York institutional brokerage Cantor pricing model for the NFL alone.” It’s similar to the price
Fitzgerald’s Cantor Gaming subsidiary brings a liter- modeling performed on Wall Street, Amaitis adds: Just like
al truth to that metaphor. Last year the firm brought the quants who price bonds, the firm performs Monte Carlo
the eSpeed trading platform that its brokers use to Las Vegas, simulations to come up with the odds for an event.
where tourists can use it to bet on sporting events via wireless
devices. This year Cantor Gaming hopes to debut wireless bet- A Market Gamble
ting on the financial markets themselves at Vegas resorts. The application that Cantor Gaming hopes to bring to
How does a firm make the jump from Wall Street voice Nevada later this year, pending approval from state regula-
brokerage to Vegas bookmaker? The force behind the move tors, is called Financial Fixed Odds. Currently operational in
is Cantor Gaming CEO Lee Amaitis, who also serves as vice the U.K., it allows people to bet against movements in the
chairman of Cantor Fitzgerald’s affiliate, BGC Partners. markets. Cantor makes prices for these bets based on algo-
Amaitis began working at Aqueduct racetrack at 16, rithms developed in eSpeed. The amounts that can be
eventually becoming a horse trainer. In the 1980s he moved wagered range from $10 to $1,000. “This will allow people in
to Wall Street, working at Fundamental Brokers in New the state of Nevada to trade the market without having to go
York. In 1995 he joined Cantor Fitzgerald. A year later, he through a brokerage account,” Amaitis comments.
moved to Europe to run the firm’s U.K. division, which got Regulations require that Cantor Gaming keep its IT infra-
involved in Internet gaming and developing technology for structure — wireless devices and the servers that serve data to
betting on the financial markets via spread betting. Spread them — at a licensed operator within the state. “Ideally,”
betting is similar to day trading in that you’re betting on Amaitis says, “we’d love to have a giant server farm in the mid-
which direction a stock will move in the short term, but dle of the desert to supply all the technology to all the casinos.”
there are two major differences: It’s tax-free, and it doesn’t According to Amaitis, slot machine vendors such as
require the actual purchase of stock. Bally’s, IGT and WMS view Cantor’s mobile gaming devices
In the U.S., spread betting and Internet gambling are ille- as a threat — “Just like electronic trading was somewhat of a
gal. Nevada was the first state to pass a law allowing Internet cannibalization of the voice brokering business,” he explains.
gaming but never enacted it because of federal restrictions. T o Yet Amaitis says Cantor is meeting the needs of people
overcome those restrictions, Amaitis came up with the idea of who want to enjoy the restaurants, bars and shows in Vegas
building a wireless network and mobile devices that would and gamble in a more comfortable environment than a casi-
enable people to place bets only in Nevada. Cantor wrote and no. “We’ve been able to convert what most casinos call dead
sponsored a state bill supporting the scheme that was passed in space into a casino space,” he says. ✧ —P.C.
wallstreetandtech.com January/February 2010 11

13. Trends & Analysis
SWIFT Restructuring Includes Layoffs
A
S PART OF A GLOBAL initia-
tive to reduce costs and improve
operational efficiency, SWIFT
began last year a restructuring of
its North American Commercial organiza-
tion that has resulted in a number of layoffs
and other cost-cutting measures. Other
SWIFT groups in North America will follow
in the restructuring plan.
The moves are part of the Lean@SWIFT
initiative that aims to make the organization
more efficient and remove 90 million euros
(more than US$130 million) in global recur-
ring operating expenses by the end of 2010,
according to Joanne Healy, head of public
relations for the Americas at SWIFT. The
provider of secure global financial messaging
services would not disclose the number of
people who have left the organization. The
Lean@SWIFT program is designed by
McKinsey & Company.
“This is an 18-month program,” says
Healy. “We have made a commitment to the
board to cut recurring operating expenses [by] 90 million euros increase efficiency and to free up costs to expand to additional
by the end of 2010. Given that manpower costs are a large part businesses in North America.”
of the cost base, there have been some [head count] reductions. According to Pryce, many of the head count reductions
Lean@SWIFT is being rolled out in waves across SWIFT, and come from a hiring freeze that has been in place since the
we are in the middle of the wave that impacts the Americas beginning of 2009. Many open positions will not be filled as
Commercial organization.” the organization finds efficiencies through the Lean@SWIFT
Adds Healy, “It is not just about cutting head count. It is process, he explains. Other staff reductions result from early
about making the operations more efficient.” Healy declines to retirement packages that were offered to longtime employees.
comment on what percentage of the operating cost reductions The remainder will come from layoffs, Pryce acknowledges.
could be attributed to layoffs. The New York-based Commercial organization is
At the SIBOS conference in Hong Kong in September, SWIFT’s smallest group in North America, with about 60
SWIFT CEO Lazaro Campos outlined Lean@SWIFT to the employees, says Eva Zaeschmar, head of stakeholder relations,
audience. “Our target for increased efficiency is 30 percent,” Americas, SWIFT. She points out that other groups, including
he reported, according to the transcript of his speech. “Yes, the Technical (IT and operations) group, are much larger.
you’ve heard correctly: 30 percent. ... The approach should In addition to the Commercial and Technical organiza-
also enable us to improve the service we offer. Twenty percent tions, SWIFT’s North American groups also include a Support
will translate into short-term structural cost reductions. The Center organization, adds Pryce. The Technical and Support
remaining 10 percent will fund our future.” groups are located in Virginia, he says. SWIFT’s main office in
the United States is in New York. It also opened an office in
Only the Beginning San Francisco in July 2008.
“Of the staff in North America, one-third of the organization “We are halfway through Lean@SWIFT right now, but it
Photo: iStockphoto
has gone through the Lean process,” says David Pryce, man- was announced earlier in [2009],” Pryce comments. “SWIFT
aging director, Americas, SWIFT. “The rest will start later. We is committed to reducing the amount of cost to the organiza-
are looking to reduce operating costs so we pass the savings on tion without impacting the service levels. The idea is to lower
to our clients. The idea is not to impact services; it is to costs to the industry.” ✧ —Greg MacSweeney
12 January/February 2010 wallstreetandtech.com

15. Insider Trading:
Can It Be Stopped?
>>> WITH THE SEC UNDER PRESSURE to salvage its
battered reputation, the regulator has been acting with
newfound zeal to eliminate insider trading. In what has
been termed the biggest insider trading ring in a generation, the regula-
tor recently brought cases against the founder of the Galleon Group
Larry Tabb
hedge fund and former directors at a Bear Stearns hedge fund. In a series Tabb Group
of interviews, Senior Editor Melanie Rodier spoke with Larry Tabb,
founder and CEO of TABB Group, and Yvonne Pytlik, managing part-
ner, Global Compliance Risk Management Corp., about what processes
and technology financial firms can use to stop insider trading.
WS&T: Can financial firms stop insider trading? No one is immune to those
trends. Banks and hedge funds
Tabb: It is a very difficult thing to catch. [Perpetrators] are and asset managers have to
not using corporate telephones, they’re not using e-mail. take much more proactive Yvonne Pytlik
They’re working with a surreptitious group of folks to do actions to address those issues. Global Compliance
things they know they’re not supposed to do. There are [several] areas Risk Management
The issue really is trying to understand who is involved in where they can address this Corp.
[corporate] actions, especially on the M&A side and the bank- issue: First, having a single
ing side, and to try to keep them cordoned off [from trading view across the organization and truly identifying in a sys-
professionals] as much as possible. But the challenge is trying tematic and methodological way the highest risk across the
to understand the trading activities and the names you’re organization. One of these [risks] is insider trading. It should
focused on on the corporate side and surveilling them. be on the agenda on boards and senior management and
As well as ensuring the folks on the banking team are cor- executive committees. And companies should be looking at
doned off and isolated from trading folks, you have to make sure their own environments and understanding how insider
you’ve got strong agreements with all of your vendors, that trading can be prevented, how they monitor and identify
everyone knows that everything is sensitive information. And it’s those cases, and finally, the escalation process and remedia-
also about following traditional compliance policies. The prob- tion. From that perspective, [firms need] strong methodolo-
lem with catching some of this stuff is that people know they’re gies and standards.
doing something wrong, and they do go pretty far to hide it. The second area to be evaluated in light of insider trading
is companies’ compliance programs across the organization.
Pytlik: The recent cases of insider trading and other com- What types of policies are in place to address insider trading?
pliance violations have had a tremendous impact on the What kinds of procedures and infrastructure are in place on
industry. A serious compliance violation impacts investors and the business side, and what supervision is there to effectively
shareholders and is self-destructive to companies themselves. identify insider trading?
14 January/February 2010 wallstreetandtech.com

16. WS&T: Is the line between information and insider infor-
mation different at hedge funds, such as Galleon Group, Major Insider Trading Cases
which are known for their secrecy, and other financial firms?
October 2009: Galleon Group founder Raj Rajaratnam is
arrested along with five others as part of a $20 million
Tabb: No, there’s no difference. Insider trading is insider insider trading scheme involving IBM, Intel and McKinsey.
trading. The issue has more to do with compliance. Do they
take it seriously? Does the organization have pressure from September 2009: The SEC accuses Reza Saleh, an employ-
ee of H. Ross Perot’s investment firm, of making $8.6 million
the top to gather that type of information and take advantage in illegal trading profits when Perot Systems Corp. announced
of it? Compliance starts at the top. If there’s significant pres- its sale to Dell. Saleh reached a deal with the SEC, agreeing to
sure at the top to find and take advantage of inappropriate return all the money. But he will not be forced to admit or
deny the allegations.
information, no matter how many compliance people are in
the organization, you’re going to have a problem. February 2008: Hong Kong banker David Li and two oth-
ers pay $24 million to settle civil insider trading charges in
connection with trading of Dow Jones & Co. stock around
WS&T: There’s been a lot of talk in the Galleon case about the time of News Corp’s takeover offer. Li, chairman of Bank
Raj Rajaratnam, founder of Galleon Group, and others of East Asia, was a former director at Dow Jones.
using expert networks to get inside information. What are
March 2007: Fourteen people, including former employees
these networks, and how do they work? of UBS AG and Morgan Stanley, are accused of a nearly $15
million insider trading scheme. Eight Wall Street profession-
Tabb: Expert networks are an issue for a lot of firms. They als, two broker-dealers, a day-trading firm and three hedge
funds participated in the scheme. Former UBS manager
are a group of unlinked individuals who have information on Mitchel Guttenberg, a member of the bank’s investment
certain aspects of a company or business, industry, or econo- review committee, is sentenced in 2008 to a six-and-a-half-
my. I’m a member of the GLG [Gerson Lehrman Group] year prison term.
expert network. People call me about different things. There April 1987: Ivan Boesky pleads guilty to insider trading. He
are all sorts of reminders the firm gives about what [its pays a $100 million fine to the SEC and spends 22 months in
experts] can talk about. I’m not allowed to provide sensitive prison. The character of Gordon Gekko in the 1987 movie “Wall
Street” is based at least in part on Boesky.
information. There are all sorts of warnings on the GLG site.
What a hedge fund asks me is up to the hedge fund, and
it’s up to me to stay within the guidelines of what I can say WS&T: How can technology help stop insider trading?
and can’t say. For a hedge fund, it’s an invaluable tool.
There’s no mechanism to record a conversation. As an indus- Pytlik: T echnology is very critical, especially right now as reg-
try analyst, I have access to some sensitive information — ulations and the complexity of the business are increasing. IT
but not much. But if I’m a programmer at Microsoft and is the tool that will help identify a number of violations. Insider
someone is asking me about the next Windows release, trading is probably one of the most complex areas to identify
there’s probably a bunch of stuff I can’t say. Expert networks and detect. There are bigger companies that offer tools, such
have come to strength in the last eight to 10 years. They’re as Actimize and [Oracle] Mantas. And there are also more bou-
a function of the social media business model, channeling tique firms [that offer solutions]. But we have to remember that
requests to the right set of people who have information that information technology needs to be much more sophisticated.
funds are looking for. Companies need to do real-time monitoring and really focus
on preventive controls as a first measure. They [also need to]
WS&T: Has the number of insider trading cases risen monitor on the back end and identify compliance violations.
recently because of the economic downturn?
Tabb: Generally it’s going to be surveillance-type tools [for]
Tabb: Insider trading has always gone on. The ability to spot monitoring the names you’re working with and [checking] for
it and capture it has gotten better with the ability to analyze abnormal activity that’s going on — especially on the options
more data. The SEC is under tremendous pressure because side if it’s a specific company — and monitoring e-mail and all
of its failure with [Bernard] Madoff. So it’s very important for types of communications. It’s a very hard thing to catch. ✧
them to get a couple of wings in their hat — to make a high-
profile arrest and prove they’re on the case. We’ll be seeing
more fines and more criminal proceedings as the SEC tries to View a video of WS&T’s interviews with Tabb and Pytlik
at wallstreetandtech.com/video/insider-trading.
reestablish its reputation.
wallstreetandtech.com January/February 2010 15

17. The World
Isn’t Flat
Howard A. Rubin is the founder of Rubin Worldwide, a research and advisory firm focused on the economics of business technology. howardarubin@gmail.com
I
T IS CLEAR from all of the IT analyst statements that with 2009. However,
2010 has been the most difficult year to forecast ever in if application spending
terms of financial services sector IT spending. (maintenance and devel-
Forecasts from Gartner, Forrester and others predict opment) and infrastruc-
that there will be an upturn in spending later in the year while ture spending (process-
the early quarters will be “flat” — along 2009 exit rate levels. ing, networks, desktops, help desk, etc.) are assessed separately,
All of these predictions indicate that everything currently is in it is quickly apparent that the 2010 world of financial services
flux and can change month by month. But the overarching IT spending isn’t really flat when viewed “under the covers.”
pattern is that spending will remain at 2009 levels. Following is an example that sheds light on actual 2010 budg-
Unfortunately, the notion of “flat” is particularly hard to et phenomena apparent from recent data. Let’s go back in time
interpret at this point in time. Traditionally, IT spending in to 2008 and use an organization with a $5 billion IT budget:
financial services (as well as other sectors) has been calibrated The 2008 budget consists of $2.2 billion in infrastructure
against revenue and operating expense. But the economic tur- expense and $2.8 billion in applications expense. For 2009 the
organization decreased both applications spending (down 12
Although 2010 infrastructure percent) and infrastructure expense (down 16 percent). These
numbers are truly representative of the 2009 IT budget pat-
budgets indicate continued terns. The resulting total spend for 2009 comes to $4.3 billion
compression, the applications — applications at $2.5 billion and infrastructure at $1.8 billion.
For the 2010 budget, applications spending is budgeted at an
budget tells a story of business- 8 percent increase over 2009 (bringing it to $2.6 billion) while
aligned investment. infrastructure spending continues to be squeezed, facing a 10 per-
cent decrease (bringing it to $1.7 billion). The total 2010 budget
is $4.3 billion, which is “flat” with 2009 spending levels, but the
moil of 2008 and 2009, replete with write-downs and credit strategic workings of current spending trends are far from flat.
losses, has rendered these two reference points unstable. It is
sort of like removing longitude and latitude from the globe and Infrastructure Still Slighted
then turning on a GPS — there will be a signal, but one would- Even in these early stages of the economic recovery, the pres-
n’t be able to tell where he was. sure on infrastructure costs continues while discretionary
An alternative reference point could be absolute spending. spending is returning to applications.
An organization can then look at industry trends in terms of On the infrastructure side, the ability to reduce costs is being
whether peer spending is going up or down. Surprisingly, enabled by a combination of Moore’s Law, standardization,
however, this “benchmark” gives a false reading as well. virtualization and demand management (this is the inverse of
Moore’s Flaw, which states that the lower the unit cost of an infra-
‘Flat’ Is Relative structure service, the increased demand increases the total cost).
Current December 2009 data from about 80 percent of the At the same time, the focus on demand management is
world’s largest financial institutions indicates that, at the high- manifesting itself in every aspect of IT infrastructure. Firms are
est level of reporting, absolute IT budgets for 2010 are “flat” driving down ratios of desktops to head count from as high as
2.1 to 1 to under 1.3 to 1 and rescaling their infrastructures in
For more on 2010 IT spending, see Aite Group’s terms of mainframe MIPS and physical servers to be better
forecast, page 24.
aligned for the “next normal” of the financial services business.
16 January/February 2010 wallstreetandtech.com

18. Howard Rubin, Founder, Rubin Worldwide
Simultaneously, there is a parallel shift from high fixed-cost the services can be procured regionally. In addition, the servic-
structures to more variability. Add cloud services to this and the es have expanded to IBM and Microsoft platforms. Using such
next “normal” — which should be evident by the end of 2010 services externally or internally in late 2010 will help define the
— begins to take shape. next “normal” as a trade-off of operating expense and capital
Although 2010 infrastructure budgets indicate continued expense, a trade-off of variable costs versus fixed costs, and as a
compression — along with increased staff productivity, new standard of deployment service levels: servers on-demand.
greater use of strategic sourcing and effective demand man-
agement — the applications budget tells a story of business- Next-Generation Transparency
aligned discerning investment. This is most evident in the At the same time that the flat world is becoming increasingly
investment banking segment, which appears to be rebalancing less flat, a next-generation of IT transparency is likely to emerge
its IT portfolio. An analysis of absolute spending/budgets for in 2010. An examination of IT organization plans reveals that a
2010 versus 2009 shows development funding moving toward next generation of services catalogs are under development.
(in rank order) global equities, foreign exchange, commodi- The current generation has a primary focus on service defini-
ties and capital markets. tions with their associated costs to drive unit cost efficiency. The
new generation in the works has clear indicators of the linkage of
Changing the Competitive Landscape costs and business volumes (how they correlate with each other),
There are other phenomena that likely will kick in during 2010 makes fixed versus variable costs and the user influence over them
that under the “flat” surface will change the competitive land-
scape even more. (By contrast 2009 was typified by an almost In the context of competitive
sectorwide playbook: reduce head count, use more offshore
labor, renegotiate with vendors, consolidate data centers, cut strategy, 2010 is shaping up to be
discretionary spending, reduce applications and outsource a year of diversity and boldness.
where possible.) For example, 2010 Wall Street IT plans reveal
major thrusts in location strategy — not just adding offshore
labor but rather making long-term decisions on business geog- visible, and even shows the time lags of cost changes/shedding.
raphy based on talent availability, risk factors and business Furthermore, catalogs themselves are moving away from
growth (e.g., which country will be the “next India”). just infrastructure costs to application-based and transaction-
In addition, use of private and public clouds is becoming focused transparency. In short, they are migrating to a language
real. Look at Amazon’s EC2 as a model of price structure — of business versus a language of technology.
perhaps even as the new benchmark. Its unit costs are now
down about 12 percent to 15 percent, while at the same time Lessons to Learn
If everything stated so far is close to right, there are a few key
lessons to be captured:
Falling Infrastructure Costs First and foremost, to attain an understanding of technology
economics it is essential that subsurface phenomena be under-
Plans in place for major companies in regard to unit stood. T echnology is an integral part of products, services, busi-
cost changes as seen through the eyes of service cat- ness operations and customer interactions. It is investments and
alogs indicate the following reductions:
changes at these levels that shape the surface. Quite simply: Even
Mainframe MIPS 16 percent if the surface is flat, there can be a lot going on below it.
Mainframe Storage 9 percent Second, even in the absence of traditional reference points
(e.g., the loss of meaningful and stable data on revenue and
Physical Servers:
expense), calibration and navigation is still feasible. An organi-
UNIX 8 percent
Linux 9 percent zation can track its movement against itself and ascertain how
Wintel 10 percent peers are similarly moving.
And finally (somewhat), in the context of competitive strat-
Virtual Servers 15 percent per image
egy, while there seems to have been a somewhat standard play-
NAS and SAN Storage 5 percent
E-Mail 7 percent book that typified the sectorwide cost reductions of 2009, 2010
Desktops 3 percent is shaping up to be a year of diversity and boldness. Perhaps we
Networks 5 percent (per port) will see the ripples in the flat surface in the coming months.
Hopefully some tsunamis of success, too. ✧
wallstreetandtech.com January/February 2010 17

19. s p e c i a l a dv e rt ising se ct ion
Discipline
Drives Success in
Trading Systems Development
E
ffective trading systems – for both
sell-side and buy-side firms –
are critical to achieving high per-
formance in the capital markets.
Trading systems with features firms to create separate, properly staffed
that allow firms to meet their clients’ needs functions, helping confirm that workflows
can be a significant source of new revenue. continue and priority projects maintain
On the other side of the equation, system their momentum. We encourage separa-
defects that make it to the production level tion within development teams, as well,
can have a hugely disproportionate impact with the creation of smaller, more agile
About ACCeNture units to address tactical issues while prog-
on profitability, with corresponding damage
Accenture is a global manage- ress continues on high priority, revenue-
ment consulting, technology
to the firm’s reputation and credibility in the
marketplace. generating features.
services and outsourcing company.
Combining unparalleled experi- Developing effective and innovative trad- With the right metrics, testing process, and
ence, comprehensive capabilities ing systems has never been an easy process. structure in place, trading system develop-
across all industries and business New market opportunities appear quickly ment can become a more reliable, industri-
functions, and extensive research and it is difficult – sometimes impossible – to alized activity. A sharper focus and greater
on the world’s most successful get corresponding revenue-generating fea- efficiency help eliminate development back-
companies, Accenture collaborates tures implemented in time to take advantage
with clients to help them become
logs and increase the frequency of releases.
of them. That, in turn, reduces the pressure to add
high-performance businesses and
Accenture’s work with trading system feature after feature to each release, delay-
governments. With approximately
177,000 people serving clients in
development teams — at both buy-side and ing the development schedule and creating
more than 120 countries, the com- sell-side firms, from global investment frustration in the sales force and dissatisfac-
pany generated net revenues banks to smaller trading shops — has tion among clients.
of uS$21.58 billion for the fiscal enabled us to identify three key elements Trading systems are at the heart of the
year ended Aug. 31, 2009. that must be aligned for innovative and effi- global capital markets. Accenture believes
Visit www.accenture.com for more cient development: that disciplined systems development with
information.
1) Measurement. Many organizations use the right team can provide capital mar-
the wrong metrics – or no metrics at all – kets firms with a significant opportunity to
when assessing the productivity and effec- establish and maintain a meaningful com-
tiveness of trading system development. petitive advantage. By combining our capital
While the number of releases per year markets experience, proprietary assets and
is important, the number of high-priority knowledge of trading systems applications,
features implemented per year is equally, we have developed an approach that yields
if not more important. consistently strong results for firms seeking
to upgrade this core capability. Our approach
2) Testing. It should be obvious, given the provides the structure needed to establish
potentially high cost of defects, that pro- and manage priorities, and to enforce rigor-
duction is no place to identify and repair ous quality standards while also providing
About the Author:
problems. Structured, disciplined testing the ability for faster innovation required in
Lloyd Altman is a senior executive
in Accenture Capital Markets, lead-
at the unit test, integration test, regression today’s environment.
ing its Core trading Services offer- test and user acceptance testing (UAT) Selecting an experienced company with a
ing in North America. he has been levels should reduce defects found in pro- proven track record can enhance the chances
involved in the delivery of solutions duction to the right percentage – zero. of success for any trading systems initiative.
for a wide range of buy-side and Please contact Accenture if you would like to
3) Separation of Powers. At many firms,
sell-side products and functions,
production support and development are schedule a discussion or workshop to explore
including credit default swaps,
program trading, fixed income intertwined, which means that the pace of how to achieve high performance in trading
trading and risk management. innovative development slows when pro- systems. To read more about this topic or to
duction problems crop up. We work with contact us, visit www.accenture.com/trading.
To read more about this topic, visit www.accenture.com/trading

20. By Ivy Schmerken
The Value of
Trade Ideas
To drum up commissions, sell-side sales professionals increasingly are communicating trade ideas to
buy-side clients via alpha capture systems, which provide performance metrics around the trade ideas.
W ITH TRADITIONAL WALL
Street research analysts focusing on
long-term trends, sell-side sales
forces are filling the void for short-
term trade ideas — including both buy
and sell recommendations. To commu-
nicate these ideas and prove their value to institutional clients,
sales desks are sending their trade ideas through so-called
“alpha capture systems,” which enable sell-side salespeople to
efficiently communicate with buy-side firms in an electronic
format and put performance metrics around their ideas.
Thomson Reuters’ StarMine and First Coverage’s
Community to share trade ideas with the buy side. An alpha
capture system — first used by U.K. quantitative hedge fund
Marshall Wace in 2001 to capture profits from short-term
trade ideas — allows buy-side clients to manage and filter
information while quantifying the value of trade ideas.
Stuart Fraser, head of alpha capture at U.K. institutional
broker Collins Stewart, conveys trade ideas to institutional
clients through youDevise’s TIM. The Web-based system
disseminates — in real time — trading ideas on more than
13,000 equities and ETFs generated by as many as 350 sell-
“Trade ideas are coming not only from traditional sources, side companies. Buy-side clients can filter which salespeople
such as research analysts, but now [they] are originating on sales they wish to follow, as long as they have an existing relation-
desks,” comments Paul Rowady, senior analyst at TABB Group. ship with those sell-side firms.
According to industry experts, salespeople at the invest- TIM tracks the performance of the trade ideas based on
ment banks increasingly are leveraging alpha capture systems their timeframe and market value, according to youDevise,
such as youDevise’s Trade Information Monitor (TIM), which is based in London and New York. “It gives the clients
The Genesis of a Trade Idea
STUART FRASER, head of alpha Focusing on the top 150 But while the cash flow model is
capture at U.K. institutional broker European names (out of 350 in his an important part of the firm’s valua-
Collins Stewart, leverages the Trade firm’s database), Fraser says he tion process, “It’s not the only impor-
Information Monitor (TIM) alpha culls his trade ideas from various tant part of that,” Fraser stresses. He
capture system from youDevise to sources, including Quest, the bro- personally visits two or three compa-
push out trade ideas to his buy-side kerage firm’s proprietary cash flow nies a week and also obtains ideas
clients. According to Fraser, he model. “One looks at cash flow at a from Collins Stewart analysts and
enters ideas on U.K. and European long time horizon, and stock prices even clients. In addition, “There’s
stocks prior to the opens of the move materially around that in the information in the market [and]
London Stock Exchange and the New short run,” he explains, adding that client meetings with the companies,”
York Stock Exchange. But where he uses cash flow analysis to gener- Fraser says. “It’s a fairly wide net one
does he get his ideas? ate both long and short trade ideas. uses to capture ideas.” —I.S.
wallstreetandtech.com January/February 2010 19