Special Report: Securities Services, page 21
www.securitiesindustry.com
OCTOBER 1, 2007
NEWS DESK
BDFS changes clearers; BATS
maintains aggressive pricing; and
Deloitte sees an “information security paradox.” PAGE 3
PERSPECTIVES
GUEST COMMENT: Financial institutions that don’t encrypt their data are
exposing their most important assets
to the “wolves,” says CipherOptics’
Jim Doherty. PAGE 4
Is Swift at a Crossroads?
Restructuring may help ‘gain momentum’ in
face of competition and changing environment
BYJOHNSANDMAN ended his 15-year tenure as CEO
The official theme of this by passing the torch to Lazaro
week’s annual Swift Sibos Campos, a 20-year veteran of Swift.
conference is “Gaining Momen- More recently, a large-scale re-tum,” which the banking and secu- organization has taken place. Swift
rities industry consortium says “will has created a markets group that is
serve as a platform to discuss how divided into eight segments: in-the financial industry can speed up dustry programs and project man-implementation of strategic oppor- agement, global transaction banks,
tunities to achieve more, together.” corporates, bank and payment mar-But the Boston conference may also ket infrastructures, standards, in-be a turning point for Swift as its vestment managers, broker-deal-network and messaging franchises ers, and custodians and securities
face increased competition. market infrastructures. It also has
Major changes have taken place created a leadership council that
in the leadership ranks of the La includes Campos, chief informa-Hulpe, Belgium-based organiza- tion officer Mike Fish and CFO
tion over the last year. In April, Francis Vanbever.
chief executive Leonard Shrank Two others on the council are
Gottfried Leibbrandt
VIEWPOINTS: Relationships matter to
Jonathan Auerbach and David
Grayson, who say that having a local
broker partner in every market they
access is key to the success of the global agency brokerage they co-founded, Auerbach Grayson & Co. PAGE 6
SPECIAL REPORT
As the securities services industry
braces for the next wave of consolidation, many are asking what it will take
for a custodian bank to remain com-
petitive. “It will be increasingly difficult for
niche players to develop
the scale and fund the
technology needed to survive,” says
Alan Greene of State Street. Also in
this report: A hedge fund servicing
roundtable; the Target2-Securities
platform; and custodians in Asia.
PAGE 21
DEPARTMENTS
TECHNOLOGY: Vendors must cooperate to get the most out of high-performance computing, say panelists at
the HP on Wall Street conference.
PAGE 10
Gottfried Leibbrandt, who had
been head of Swift standards but
now leads the newly created markets group, and Jean Sonneville,
head of the investment managers
segment and acting head of infrastructures. Jamie Shay, former head
of securities standards, was moved
into Leibbrandt’s vacated role.
Jay Martin, a former managing
director in investor services at Bank
of New York Co. and interim head
of Swift’s securities division, left this
summer, as did head of marketing
Johan Kestens. The Swift securities division was eliminated in the
reorganization. Swift spokesperson
Kara Condon said that she believes
securities is the only division of the
organization to be removed. While
the reorganization has not been officially announced, Condon said it
has been discussed in pre-Sibos
briefings.
TECHNOLOGY : A new algorithmic
trading platform combines IBM Cell
processors with Red Hat’s Linux operating system. PAGE 10
TRADING: Ahead of its merger with
the International Securities Exchange, Deustche Borse is bolstering its systems. PAGE 12
In a sign of the new era of co-operation between FIX Protocol
Ltd. (FPL) and Swift, new appointments in the standards area
were made in consultation with the
FIX governing body. “FPL has
Continued on page 44
Market Structure
Weathers Flood of
Message Traffic
BYJOHNHINTZE
Unexpected equity-market
volatility and new regulatory requirements have combined this year to give
headaches to market centers as
they generate and take in record
levels of message traffic. There
have been bumps in the road,
but no potholes thus far.
Quote-displaying markets
not only have to digest quotes
and order-related messages but
also must monitor as many as 1
billion quotes a day on other
markets due to the best-execution requirements of Regulation National Market System
(NMS). Message levels at the
New York Stock Exchange’s
Hybrid Market, for example,
have caused the exchange to
ramp up its capacity and data
throughput ahead of schedule.
The use of Reg NMS’s “
self-help” exemption has been another sign of complications arising from record messaging volumes. When a market center’s
quotes appear stale, exchanges,
electronic communications networks (ECNs) and broker-dealers can invoke self-help and decline to route trades to that center even when it’s displaying a
better price. Self-help was liberally applied after Reg NMS
Continued on page 45
STANDARDS & PROTOCOLS: The FIX
algorithmic trading definition language
nears release. PAGE 12
COMPLIANCE: Chinese regulators
have finished a three-year overhaul
of the country’s brokerage industry.
PAGE 18
▼
People in the News p9
Company Index p46
People Index p46
▲
On the Web
ISDA credit derivatives survey;
Avox adds collateral monitoring;
and more. See Breaking News at:
www.securitiesindustry.com.
Citing AML Vulnerabilities, Industry Groups
Seek Enhanced Cover Payments Transparency
BYJOHNSANDMAN fer because the current message
Even with anti-money-laun- format—Swift’s MT 202—does
dering (AML) regulations in not require that the originator or
place across much of the globe, beneficiary be identified. The MT
there are still basic transactions that 202 messages can also contain an
many observers fear are vulnerable underlying MT 103, which allows
to money launderers. Growing for an unconditional transfer of
concerns have caused two industry funds, compounding the issue.
groups to call for the Swift mes- Critics say that 103s are routinely
saging cooperative to bring added sent without critical information
transparency to wire transfers. on counterparties.
Cover payments, a common In response to cover payment
part of the global payments system, opacity, the Wolfsberg Group, an
can disguise the source, and even- association of 12 global banks that
tual destination, of a funds trans- Continued on page 44
Hackers Up the Ante, Network Protectors Respond
Security specialists use unified, intelligent systems to thwart attacks
BYMARIATROMBLY an “M&M” security model: “a hard shell on the out-
Once a hobby popular with teenagers, hacking side, and the inside was soft and chewy.” That form of
has evolved into a multinational, defense is no longer sufficient. “Today,
multibillion-dollar industry that utilizes
ever-more sophisticated techniques to
penetrate companies’ information technology security systems. Targeted cy-berattacks can now inflict substantial
damage on a financial services firm.
“The hackers aren’t doing it for fun
anymore,” says Gene Manyak, product everything is connected,” he says. “
Laptops get plugged in, go home, then plug
in again the next day.”
There are threats in such mobility.
In August, a Merrill Lynch & Co. laptop holding sensitive data—including
Social Security numbers of 33,000 em-
Inno Eroraha ployees—was stolen. According to a
marketing manager at Redwood City, study conducted by Traverse City,
Calif.-based Check Point Software Technologies. Ten Mich.-based research firm Ponemon Institute, 73
years ago, Manyak notes, a company could settle for Continued on page 41
