Thankfully, there was no volcano to spoil the party at this year's SIFMA Expo in New York. Good job too, because there were quite enough challenges to face already. These included: the unprecedented and enforced structural change facing our industry; the tsunami of new regulation now hitting both shores of the Atlantic; and the way that the rule-makers seem to have turned against the very market participants that only so recently cost so much to save. These challenges, and the need to understand the confluence of events that so nearly triggered an intra-day total market meltdown just over one month before, were always going to make for a 'frisky' conference.
Overall consensus was that this year's show was a little quieter than last year, and 2010's exhibitor area was smaller, with firms such as Thomson Reuters, SunGard and Microsoft conspicuous by their absence. Nevertheless, around eight thousand people attended the three day event, and despite significant uncertainty as to exactly what might be left of the industry after regulators and politicians have finished meddling with the free market structure, a surprisingly general air of optimism pervaded the show.
Transformational spending plans
This quiet confidence was both underpinned and vindicated by the results of a SIFMA and IBM joint survey indicating a likely loosening of the purse strings over the following twelve months, with double the number of participants expecting 2010/2011 budgets to increase in comparison to last year.
The survey of nearly 250 business and IT Wall Street professionals revealed that almost half expect 20% to 30% of their technology budget to be allocated for transformational initiatives in 2010 and 2011. The banks and broker/dealers polled in the survey shared the view that the most likely increases in IT investments for analytics are expected to be risk, compliance and trading.
As firms prepare to meet the government's increased transparency demands, the research from SIFMA and IBM revealed a greater focus on the development of systemic risk strategies. Perhaps not surprisingly, of all regulatory activities, systemic risk was chosen by 55% of respondents to be the largest driver of IT investments. Building on that trend, risk analytics for compliance was highest ranked for likely investment (37%), beating categories such as analytics for client segmentation (21%) and external fraud (13%). Over 90% of survey respondents said that they expect to increase their investment in analytics over the course of the next year.
While economic uncertainty still remains high, the new survey shows that concerns about the economy are waning from 2009, and for the first time since the 2008 financial collapse, firms are revisiting the use of IT to promote organizational sustainability. Key priorities include innovating processes around trading, portfolio management and risk management. Unexpectedly, client relationship management ranked last out of seventeen categories with only two percent of participants selecting that option.
Despite the positive technology investment outlook, Wall Street professionals cited lack of IT staff and high implementation costs as the biggest inhibitors of technology implementation - consistent with the findings obtained in 2009. To overcome some of these barriers, the industry is showing a larger appetite for disruptive technologies such as cloud computing (61 percent) to force business model change. [Visit www.fa5t.net/if to read "Trading Hubs Reach for the Clouds" from our Q2-2010 issue].
Commenting on the results of the survey, Shanker Ramamurthy, general manager, IBM Financial Services Sector, said: "Coming out of the largest financial crisis in modern day history, there has never been a more important time for firms to capitalize on technology investments to make sense of the data and gain a more sophisticated understanding of risks. The road to recovery is built on infusing intelligence across operations, streamlining costs and getting back to basics so that firms once again focus on innovation and growth."
These comments were echoed by SIFMA's Managing Director, Tom Price. "As we noted in our recent white paper, the establishment of a systemic risk regulator will require a significant increase in technology resources. Having the right technology in place is more essential than ever in efforts to monitor risk across firms and ensure regulators can identify and address potential problems before they escalate."
News from the exhibition floor
With hundreds of exhibitors all keen to show off their latest and greatest, there was no shortage of announcements and product launches at the SIFMA show. Essex Radez announced their tie up with ticker plant provider Exegy, with the launch of their Normalized Multicast Feed, a consolidated order book service incorporating BATS, Direct Edge, NASDAQ TotalView, NYSE ArcaBook, and NYSE OpenView Data. Whilst over at the Redline Trading Solutions booth, they were keen to show off their new InRush offering - an optimized embedded ticker plant and execution gateway for high frequency trading and smart order routing.
Interactive Data (IDC) were present in force with a big stand and had clearly been storing up some announcements for the SIFMA expo. Addressing the problem of escalating market data cost, they announced the launch of their PlusFeed Access Control System, enabling data managers to compare actual data usage with data enablements. "At a time when value is a key priority, our new data permissioning and entitlement system is designed to help clients control data usage by an end user or application across an organization, and help reduce manual workload and boost efficiency through automated and fully integrated procedures," said Jay Kilberg, Interactive Data's managing director of Feed Solutions. The firm also used SIFMA as the venue for a number of other launches.
Continuing with the message volume theme, IBM made the (now somewhat well understood) point that unexpected spikes in market volatility can cause transaction delays and systems failures, and announced their Financial Markets Framework, which they described as "an open standards based technology platform that combines IBM's industry assets and ultra-low latency features with advanced information management, analytics and process integration software".
Illustrating the need for high frequency trading firms to be able to tackle ever increasing message volumes with greater efficiency, Streambase announced two partnerships at SIFMA; one with GPU provider NVIDIA to offer Streambase users the extra processing power afforded by NVIDIA Tesla GPUs, and another with messaging specialists Solace Systems, to minimize latency in the messaging process.
According to Solace Systems' Marketing Director Barry Neumann the partnership is aimed at "making customers much more agile"; this resulting from the marriage between Streambase's CEP solution and Solace's expertise in maximizing message throughput, whilst Streambase CTO Richard Tibbetts highlighted reduced time to market as a key end user benefit of the partnership "What really matters to trading profitability is the time from idea to implementation. By providing high performance connectivity to Solace out of the box, StreamBase enables firms to rapidly develop and deploy low latency trading infrastructures."
With many trading firms, trading venues and regulators still pondering the causes and lessons from the May 6th "Flash Crash" (page 60), Richard Tibbets also had some interesting perspectives on message volumes as well as market structure, regulation and systemic risk, and shared his thoughts on the causes of, and what might be done to prevent "Flash Crash - The Sequel". Tibbetts made the point that for every catastrophic event there are many recognised near misses, and even more still that go unobserved. Urging improved transparency and co-operation, Tibbetts ventured that the best way to avoid another similar or worse event would be for all market participants and trading venues to openly share information whenever near misses occur. Nice idea, but…
Andrew Marks de Chabris of EMS vendor Tethys Technology highlighted his firm's focus on optimal workflow automation, and talked about the launch of AlphaWave, a new tool within the Tethys platform designed to assist users with the moving targets of alpha capture and continuous hedging. Andrew also offered his insights on the Flash Crash, highlighting the inconsistencies in the manner different trading venues deal with unusual market conditions as a key component of the problems of May 6th.
Continuing the themes of automation and reducing time to market, the Q2 issue of Automated Trader included a comprehensive review of RTS Realtime Systems' new product, RTD Tango Trader (visit www.fa5t.net/ii to read "Synergic Trading").
I caught up with Steffen Gemuenden and Mark Van Vugt, respectively CEO and Global Head of Sales, to find out about the RTS initiative to bridge the gap between click and algorithmic trading.
Equinix talked about their acquisition of Switch and Data, with Stewart Orrell, Senior Manager within the Equinix Financial Services team, citing additional capacity and footprint, Switch and Data's established Toronto data centre and the high level of technical expertise of the Switch and Data staff as key drivers behind the purchase. In a video interview with Automated Trader, Stewart went on to talk about his firm's expanding global presence and the growth in multi-asset class proximity trading with foreign exchange and fixed income now prominent on the algo trader's radar.
Highlighting an increasing flow of trading activity from west to east, Chi-Tech announced that their MarketPrizm trading venue connectivity and managed infrastructure service is now available to North American clients. Commenting on MarketPrizm's extended reach, Nicolas Levy, MarketPrizm Managing Director, said of the initiative, "In response to requests from firms in the region, we are introducing MarketPrizm to North America as an answer to the high cost and resource investment required for trading infrastructure and connectivity in Europe." For those looking to hop the pond themselves, Hibernia Atlantic told us that ACTIV Financial had chosen Hibernia Atlantic's Global Financial Network for Ethernet connectivity between Chicago and Frankfurt. With Deutcshe Börse's integration of recent acquisitions Need to Know News and Market News International now complete and branded as AlphaFlash, we learned that by the time you read this issue, the algo news feed will be available in three London data centres, making a total of seven worldwide - Chicago, New Jersey, Washington and Frankfurt, whilst in London, clients will be able to choose between Telehouse London Metro, City Lifeline, and Equinix LD4.
"The new offering of different data centers on location provides algo traders direct and ultra-fast access to AlphaFlash data in order to trade on London markets. We are making it as easy as possible for firms to use our algo news feed", said Georg Gross, Head of Front Office Data & Analytics at Deutsche Börse. SIFMA also served as the launch pad for the firm's screen delivered news feed AlphaFlash Monitor, which contains identical information as the machine readable AlphaFlash feed, but in a format accessible to traders who trade manually on economic event data.
Causes for concern
From the conversations we had and the sessions we attended, what we saw at SIFMA was a cautiously optimistic industry that's ready both to invest and to confront head-on whatever structural and operational inefficiencies remain. We see a market that's picked itself up, dusted itself down and is open for business, and a 'can-do' attitude everywhere we look; but a 'can-do' that's tempered with very real and justified concerns that the regulatory and structural reforms that have happened or are happening are at best ill-considered and pose a very real threat to sustained recovery.
Bank 'bashing' has become a favourite pastime for politicians in both the US and Europe. It's clearly a vote winner - for the moment at least (see also our Cover Story this month; page 52). But to those politicians unable to look beyond the next opinion poll, We'd like to ask: as you grapple with the immense budget deficits you have created, have you thought that you would need to create at least fifty Detroit production line jobs to replace the lost tax revenue from each and every trading or trading related job lost at an investment bank or hedge fund?
During the ten years leading up to the 2008 crash, the financial sector generated orders of magnitude more in tax receipts than the total cost of TARP or any other nation's bail-out plan, and proved conclusively that re-distribution of wealth occurs most efficiently outside the tax system. Legislating to restrict bonus payments at banks and hedge funds will achieve this much: the mediocre will stay, and the talented will go. Singapore and Switzerland will be delighted to welcome the cream of the disaffected American and European bankers and hedgies - as they already are. Anyway, who are you to decide the reward structure at a hedge fund? Surely fund investors are the best arbiters of that.
In summary, if the bureaucrats are big enough and smart enough to step back from some of their current policy initiatives, there's an investment community that's learned its own lessons, is now ready to get properly back to business and really is capable of making a significant contribution to the regeneration of our fragile and damaged economies. But continue down the path of interference, restriction and outright hostility and in a short time the US and Europe will be left with a financial ecosystem populated by little more than a soup of mediocrity. Time for a rethink?