The Glue that Holds it All Together

Middleware is seen as the binding force which ties disparate systems together but how will open-standards affect its use in inter-firm linkages?

As financial institutions grow ever larger, gobbling up smaller ancillary players and competitors along the way, middleware is showing itself to be the critical technology binding disparate systems and applications together.

The drive to achieve straight-through processing - a model of workflow in which trades are entered once and never touched again - is dependent, partially, on effective use of middleware to electronically transfer data from one system to another. A classic buy-side example of this, according to Lesley Keefe, principal consultant at PricewaterhouseCoopers Consulting Investment-Management Practice, is connecting a trade-order-management system to a portfolio-accounting system. "Something like connecting the IDS GIM2000 portfolio-accounting system with a trade-order-management system from Macgregor," she says.

A classic technology used to accomplish such a task is IBM's MQ (message queue) Series middleware, which allows programs to communicate with each other across all IBM platforms, Windows, VMS and a variety of UNIX platforms. Introduced in 1994, it provides a common programming interface (API) that programs are written to.

"Ten years ago, we only had IBM's MQSeries to move information from one application to another and (IBM) is still one of the leaders," says Bill Downey, also a principal consultant in PwCC's Investment-Management Practice. "IBM may still have 15 percent of the market but others have nearly as much." Among those others, he mentions, are Tibco, Vitria, Mercator and webMethods. "They all have 8 or 9 percent market share so there are now five or six viable options out there."

Middleware has certainly come a long way since MQSeries, which is still extensively used in financial services, was first introduced. More than just providing a fixed point-to-point connection between two systems, where if one system is changed, the connection is obsolete, middleware has become intelligent.

According to Tim Theriault, who was recently promoted to Northern Trust president of Worldwide Operations and Technology (see Newsmakers), intelligent middleware is able to translate one protocol into another, thus making the technology significantly more valuable to the enterprise.

He says that Northern Trust, a global custodian with $1.6 trillion in assets under custody and an investment manager with $300 billion in assets under management, makes use of MQSeries to link its trading platform from Charles River with its proprietary trust-accounting and investment-accounting system from Eagle Investment Systems. However, the company also uses a middleware solution from SeeBeyond (formerly Software Technology Corporation), called e-Gate Integrator (formerly Datagate). "Datagate receives all electronic instructions and reroutes and reformats them, if necessary," he says.

Theriault says that all middleware is not created equal. At its most basic level, he says, middleware simply facilitates application architecture by allowing one application to exchange information with another. "MQ does not have native business intelligence but it does use real-time architecture to facilitate information exchange," he says. "Datagate provides transaction functionality at the routing level and has intelligence to reformat data from one format to another." For example, he says, Datagate can take an incoming message and reformat it into a SWIFT message.

Common standards like SOAP (Simple Object Access Protocol), UDDI (Universal Description, Discovery and Integration) and XML (eXtensible Markup Language), which comprise what are now being termed Web services (see Focus On) mean that middleware vendors will have to change with the times and embrace these tools rather than proprietary technology.

"As (SOAP, XML, etc) matures, you will see the interaction and exchange of information through these protocols become more dominant," says Theriault. "Vendors will have to adapt with this."

While he suspects that MQ series will remain a viable product for intra-firm, inter-application information exchange, Theriault says inter-firm communication will eventually be dominated by the open standards espoused in the new Web-services model.

Theriault adds that Northern Trust also uses Tibco technology for the delivery of real-time market data into its online portals. Tibco is owned by Reuters.

So how should a firm approach the complicated world of middleware in an industry where the pace of technological change can be dizzying. To the chagrin of anyone looking for an easy way out, PwCC's Keefe says, "There is not currently a recognized industry leader in the middleware space."

A basic decision a firm must make when selecting a middleware strategy is to choose between in-house or external development.

Downey says that many firms are now being attracted to middleware vendors that tout their ability to provide GSTPA or Omgeo connectivity. The GSTPA and Omgeo are organizations focused on providing post-trade, pre-settlement information-matching services to broker/dealers, investment managers and global custodians. He cautions that a firm should not predicate their middleware strategy based solely on connecting up with a virtual-matching utility.

"You need to think about tools that will help you after the trade, such as with corporate actions and prices," he says, "interaction with all the custodians you deal with and reconciling cash on a daily basis. We go as far as asking, 'What are you doing about CRM (customer-relationship management) and wealth management.'"

Cost is, of course, also an important factor when deciding on a middleware solution. "These aren't $1,000 packages," says Downey. "This is a significant investment."

But an investment that may be well worth it nonetheless. Going for a vendor-supplied middleware package means that a key developer exiting the firm won't spell disaster. The solution will be standardized and well documented to avoid the difficulties that can arise when only a few people in the firm know its technology ins and outs.

Marty Rosenstein, also a principal consultant with PwCC, says firms should take time to determine their "attitude" towards middleware. That means deciding what you expect from your middleware investment, having a reasonable expectation of what it will do for the firm, doing a complete investigation into return-on-investment (ROI) and then getting support and a commitment from management. "If it has been oversold then it will not meet anyone's expectations," says Rosenstein.

---

MIDDLEWARE SUGGESTIONS

The selection of a middleware approach and supporting architecture is a strategic decision for investment firms. To implement middleware, an architecture must first be defined and a vendor approach selected.

Source: PricewaterhouseCoopers Consulting

The optimal product suite will be based on your firm's unique combination of:

- Product offerings

- Geographic dispersion

- Trade-order-management and portfolio accounting applications

- Company size

- Outsourcing relationships

While business-application vendors are forming alliances with middleware vendors to offer pre-defined application adapters, firms should select the middleware-product suite based on the full compliment of middleware functionality:

- Infrastructure (messaging, servers, data repository, administration and security)

- Business-process management (event management, notification, routing and analytics).

Middleware solutions fall along a continuum of functionality and into four general categories that afford varying degrees of flexibility and scalability:

- Vendor-centric business applications

Custom-built interfaces from the application vendor

- Point-to-point middleware

Tightly coupling two interfacing applications over a single communication path

- Network-centric middleware

Loosely coupling applications allowing the middleware to inspect data and route it per predefined rules over many communications paths

- Enterprise-enabled middleware

Loosely coupling applications and providing a business work flow and asynchronous (start-wait-respond)