Special Report: Securities Industry Outlook for 2008, page 9
www.securitiesindustry.com
JANUARY 7, 2008
NEWS DESK
Sluggish IT spending by North
American financial services firms
weighs down global growth rate; Direct Edge and Bloomberg Tradebook display quotes on NSX; and
thinkorswim enters Canada. PAGE 3
PERSPECTIVES
GUEST COMMENT: Microsoft’s Vista
operating system represents a “
critical inflection point for information
technology professionals in the financial services field,” say Intel’s Anne
Gregory and Kevin Unbedacht of
Symantec, who make a case for updating management software and
adopting advanced PCs in the inevitable migration to the OS. PAGE 4
SPECIAL REPORT
U.S. firms that have established alternative trading venues overseas are
gearing up as the word’s financial
markets move closer to
U.S.-style fragmentation. Europe is of particular interest: “In 2008,
we’re going to start to see the knock-on effects of” the EU’s Markets in
Financial Instruments Directive, says
Investment Technology Group
CEO Robert Gasser, which will
bring “an evolution in market structure prompting fragmentation and
more competition to the major exchanges.” Also: Coming off a year
of growth, the electronic bond-trad-ing sector could see a year of acquisitions; the Financial Industry Regulatory Authority makes moves toward a principles-based approach;
operational obstacles top the asset
servicing industry’s technology priorities; and more. PAGE 9
DEPARTMENTS
ASSET SERVICING: Hedge funds are
struggling to find and retain qualified
back-office personnel, and the situation will worsen as institutional money
continues to flow into the industry,
says Todd Noah of consultancy Rothstein Kass. PAGE 6
TRADING: BNY ConvergEx Group
and UBS have rolled out new algorithms in response to industry demands
for strategies for the growing equity
options market. PAGE 6
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On the Web
Fee competition among market
centers heats up; OMX aims to
build leading carbon market.
See Breaking News at:
www.securitiesindustry.com.
Retail Investors Are Drawn to Rising Volumes Escalate Latency Arms Race
Nasdaq’s All-Electronic Open Software, hardware solutions rush to fill demand
B Y TOM GROENFELD T ket data processing and analysis.
Instant opening may present S imon Garland chuckled as he ex- Larry Tabb, founder of New
threat to NYSE, Amex crosses amined charts showing the spikes York-based Tabb Group, cau-
BYJOHNHINTZE in quote volumes on the New York tions that the low-latency arms
Some of the industry’s largest Stock Exchange that began in August. race is limited in scope. He says
order aggregators are shifting “It was like Christmas,” said the CTO there are maybe 100 firms world-
their opening trades in Tape A and, of Kx Systems, a Palo Alto, Calif.- wide that can, or will, pay for the
especially, Tape B securities over to based provider of high-performance, best technology.
the Nasdaq Stock Market’s new in-memory database technology and As Garland points out, those
opening cross, to take advantage of streaming event process- with the most money
the prompt price discovery when ing. “It was magic.” can buy the best sys-
the all-electronic market opens. But not for everyone. tems. Not only can
Since the cross became fully op- Brian Hyndman Garland says some firms the top firms store
erational on Nov. 5, Automated Trad- lost ticks because their and use weeks of his-
ing Desk (ATD) has seen increased ETFs and one New York Stock Ex- systems couldn’t handle torical data in real-
demand from clients for the Nasdaq change-listed ETF, although it has all the data coming from time, pre-trade pro-
openingandanticipatesa“significant no plans for a mass migration. the exchanges. Systems cessing, they know
portion” moving their Tape B secu- “We’re taking a measured approach didn’t crash, but at the Simon Garland how much analysis
rities by the end of January, accord- and watching it closely, while speak- end of a day with 475 million quotes, can be done within the process-
ing to Shane Swanson, president and ing to clients about where their pref- 470 million might be in the database. ing windows of the firms in the
CEO of the Mt. Pleasant, S.C.-based erences lie,” said Len Amoruso, se- “That’s okay for a historical database,” next tier down, giving them an
firm. Citadel Investment Group is nior managing director of regulato- he notes, “but if you want to trade advantage in trading against the
currently shifting its Tape B ex- ry affairs and compliance at Jersey through the storm, the last thing you competition. A similar tactic ex-
change-traded funds (ETFs) and by City, N.J.-based Knight Capital. want is to lose ticks just when it is get- ists in aerial combat: By operat-
mid-January anticipates doing the Nasdaq has long offered an ting interesting.” ing inside the enemies’ OODA
same with most of its American Stock opening cross for its own listed Speed has long been an invaluable loop—short for observation, ori-
Exchange-listed stocks. stocks. The new cross accepts or- asset in capital markets, but the entation, decision, action—a
UBS reportedly is also consider- ders for Tape A securities listed on growth of algorithmic trading and fighting unit maintains the initia-
ing acting, and Knight Capital NYSE Euronext and Amex’s Tape new best-execution requirements tive and keeps its opponents off-
Group has moved 24 Amex-listed Continued on page 22 have created hefty challenges for mar- balance.
Tom Price, senior analyst for
Patent Filed for Reference Data Utility: capital markets at Needham,
Risk-Mitigating Utopia, or False Hope? Mass.-based TowerGroup, says
the need for the latest technolo-
BYCHRISKENTOURIS InterGroup. His partner, Richard gy will divide Wall Street firms
Apair of financial services vet- Tinervin, is a former EVP of Citi- into the haves and have-nots. “If
erans have filed a patent ap- group, where he founded CitiStreet, you don’t spend, you will get left
plication for a reference data man- a retirement plan recordkeeping behind,” says Price. “You will lose
agement utility that would allow fi- joint venture with State Street Corp. out in the hunt for liquidity, you
nancial firms to not only outsource Business-method patent appli- will not get to the pools that are
the cleaning and normalization of cations filed with the U.S. Patent Continued on page 20
reference data but and Trademark Office,
share the risks involved such as Grody and Tin-with any errors. ervin’s, have exploded
Thus far, the con- since a 1998 court case
cept has encountered paved the way for State
some industry support, Street’s patent on a “hub
but also skepticism as and spoke” approach to
to whether the utopia mutual fund manage-it proposes can be Allan Grody ment. They typically take
achieved. at least five years to get approval,
“The patent embraces a new say patent experts.
concept in reference data—that of The application, which was pub-risk mitigation for matching, clear- lished in October, a year after it was
ing and settling the non-valued filed, describes the reference data
components of a transaction,” ex- utility as “a method and apparatus
plains Allan Grody, founder and that sources, receives, aggregates,
president of New York-based fi- normalizes, stores, updates, dis-nancial services advisory Financial Continued on page 7
Subprime Mortgage
Crisis Hits Brokers as
Finra Targets CMOs
BYCAROLE. CURTIS
In a move indicating that the subprime mortgage problems have
spilled over into the brokerage industry, the Financial Industry Regulatory Authority (Finra) has initiated a sweep examination of broker-dealers, targeting sales of collateralized mortgage obligations (CMOs),
a type of security that is closely tied
to the debt crisis.
Finra—the single self-regulatory
organization (SRO) for brokerages—
initiated the sweep exam with a letter sent on Dec. 14 to select brokers
requesting a broad range of information about customer transactions
involving CMOs from June 30, 2006
through July 31, 2007. The firms
have until Jan. 8 to reply.
Finra spokesperson Brendan
Intindola confirmed that more than
Continued on page 21
