How is Wall Street Like the Keystone Cops?

April 28, 2013 by Leave a Comment
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Think of business in a new way. If one runner speeds up to get ahead of the pack, what tends to happen is everyone else speeds up to match his pace. With everyone running above their optimal level just to keep up, no one gets ahead and everyone loses efficiency… the market becomes less efficient. What if someone from the pack starts to run in a particular direction? The pack will follow and match the “leader.” Just like the Keystone Cops, the pack becomes a slapstick routine where everyone expends energy and resources to end up in another huddle, just at another location.

Getting an edge in the modern business environment has become a temporary advantage, as eventually everyone catches up. Technology that once put you ahead of the pack becomes mainstream; you have to look for another direction to run just to differentiate. In Capital Markets specifically, when it comes to trading, split microseconds provide a real revenue-driving edge. I’ve been told on numerous occasions that financial firms move hardware physically closer to the exchange to get any latency edge they can. The NYSE has even built a server room on their premise with every corporation having the exact same length of cable to the mainframe to discourage what had been a disastrous real estate land grab around their physical building. [Read more...]

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Banks are Still Failing Because They Don’t “Get” Risk

February 5, 2013 by 3 Comments
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Global BankingBanks are still failing and will continue to fail into the future if they don’t take risk seriously and take steps to safeguard against failure.

In 2012, the Fed tested the banks’ ability to withstand a crisis, similar to the one from five years ago, that caused unemployment to rise to 13%, a 50% fall in share prices, and a 21% drop in housing prices. Some of the top banks once again failed to show they have enough capital to survive another serious downturn. A Bloomberg article yesterday discussed how Fed regulators and the Dodd-Frank Act have been historically at odds.

Even after the past failure, banks were either too exposed outside the U.S. or were planning to hand too much money back to investors. This means, they lack a “single view” of global enterprise-wide risk exposure, with various internal silos only concerned with their own priorities.

A single snapshot of risk

In a mandate from a global governing committee, top banks have been given three years to build up a single view of all their risk to help make the wider financial system more resilient. These global banks have many branches and subsidiaries, complicating the creation of a single snapshot of risk. They will have to get on top of this initiative as a temporary stopgap, but what about future updates, and/or further changes in regulation?

Banks need to assess risk whether a regulation or a law mandates it or not. The end-game is what efficient compliance enables – long-term strategic and operational improvements, not compliance for its own sake. [Read more...]

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Trade Processing in One Second is Like Not Answering Email for Two Weeks

January 30, 2013 by 3 Comments
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The high-speed financial services industry (FSI) can’t deal in seconds or even milliseconds.  That would be far too slow.  Processing a trade in one second would be like taking two weeks off, not telling anybody, and not touching your email.  When dealing with stock prices that fluctuate in real time, any delay can mean the potential loss of hundreds of millions of dollars.  This means the trades that really matter in the financial services world need to move in one millionth of a second (10-6) and technology “pipes” need to carry an incredible amount of data.

Speed is all that matters

For Citihub, an FSI IT provider, performance is absolutely paramount for their clients.  If it’s faster, Citihub wants it because their customers need it.  If technology isn’t even a thousandth of a second faster than the latest version, they don’t want to hear about it.  They want to know how quickly a message can get from point to point, whether it’s trades, market data, or any piece of useful financial information.  Bottom line: it needs to travel unnaturally fast.

Citihub provides consulting services and technology infrastructure to serve their clients in technically complex and business critical environments.  Citihub searched for a faster messaging solution for their clients’ high-volume, low-latency trading needs and that search ended with TIBCO. [Read more...]

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Structure No Longer Has a Vote on What’s Data or Not

January 29, 2013 by Leave a Comment
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Not so long ago, businesses didn’t care about information outside the normal structure of trusted outlets like print media, trade journals, academic research and other trusted system-generated information. In fact, I would go so far as saying that if it wasn’t structured, it wasn’t data. All of this changed soon after customers started to freely express their comments and opinions on websites and bulletin boards. Views became another data point to track and analyze to harness customer preference as an aggregate and per each individual. In some ways, unstructured customer data via connectivity and social media has multiplied the already growing challenge of big data.

Unstructured data now matters

Now businesses thrive or fail on what these un-controlled, unstructured data sources say. From retailers to job sites, what unstructured data says about a business and brand matters. Businesses don’t control unstructured data sources, and this scares them. But, just like structured data sources, business can ingest, understand, react, and even anticipate what’s going to happen if they are clever.  The speed and pace at which unstructured data sources spread has increased due to the nature of the Internet and global connectivity. [Read more...]

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Financial Sector Faces Financial Crisis

January 28, 2013 by 1 Comment
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Banks have a need to embrace regulation and compliance as a way to regain the public’s credibility and to earn back the trust of the large investors.

Ups and downs

The financial sector has had its ups and downs. Once it was declared, “Banks are too big to fail” in 2008, the “bank problem” was thought by some to be decided. However, in 2010 the Occupy protests gained sympathy when railed against saving such large financial organizations for what many saw as self-inflicted wounds. The public was somewhat mollified when most of the banks paid back the money from the bailouts. Nevertheless, still today people offer up their complaints, arguments and protests.. No matter what side of the aisle it comes from, a flurry of opinions fill the Internet, newspapers, and bulletin boards every day.

Now we have a different form of protest that is not being fought with picket signs, but perhaps the strongest tool of all — silence. Big investors have recently made feelings known (and voices heard) with their wallets and are putting their money into new ventures. Interestingly, shareholders selling their stakes in companies have tripled since 2008, creating new millionaires but that cash has not found its way into the financial services industry. The biggest fish are swimming somewhere else. [Read more...]

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