Like a patient who has undergone a heart transplant and needs to recover before resuming full activity, the securities industry is still suffering from the corporate scandals and excesses of the Internet bubble. All of this has destroyed investor confidence, hurt trading revenues and drastically reduced the level of IT spending, according to executives speaking during yesterday's general session.
As they looked back across the past three years and spoke about the transgressions that have led to the current downturn, speakers agreed that the industry is in a recovery period, but it's going to take time to repair investor confidence.
"Our biggest challenge is to restore the public trust and that has been badly damaged by the Internet bubble and corporate scandals," SIA President Marc E. Lackritz, told an estimated crowd of 450 securities-industry-technology executives that filled the Hilton Hotel ballroom.
Dennis Mooradian, co-chief executive officer and chairman of Wells Fargo Investments, LLC, cites "greed, euphoria and stupidity as the three things" that standout in his mind. He also cites a recent SIA survey of high-net-worth investors who questioned the honesty of brokers.
Calling this a "confidence rebuilding period," Mooradian expresses optimism that "a lot of the right things are happening," Specifically, he cites the Sarbanes Oxley Act - "It's not perfect, but it does a lot of the right things" - and the global-research settlement for establishing best practices. "Seeing people in handcuffs, having fines levied and corporate executives sent to jail," has contributed to the recovery, he says.
On the economic front, significant increases in trading volume and positive filings in initial-public offerings (IPOs) are among the positive trends. "The industry has a bright future, but it probably will be more difficult than it has been in the past," says Mooradian. But anyone who expects a quick recovery may be in for disappointment.
IT spending and staffing are down and Wall Street's CEOs are holding CIOs up to higher scrutiny. "The CEO has been burned. You've had new technology that couldn't be delivered because the companies went out of business," says Mooradian. "There were so many technology companies with the next great idea and they never were installed," he says. "There was promise of productivity that never was delivered. That causes the CEO to be more jaundiced at the next project."
It appears that the real victims of Wall Street's crimes may be the IT departments that have had their budgets slashed and their staffs cut to the bone.
Though IT spending went up dramatically from $11.5 billion in 1996 to $25.4 billion in 2000 and then declined to $21.7 billion in 2003, Lackritz notes that the IT spending rate has tapered off. "That's a reflection of the industry's performance over the last couple of years and the bubble being burst," he says.
In 2005, IT spending is expected to rise to $22.3 billion. Money will be spent on three areas - wireless access, voice recognition and Web services, says Lackritz but he admits these areas have been talked about for a while.
In addition, the industry will spend $700 million through 2005 to comply with anti-money-laundering actions.
But Lackritz maintains that spending less on technology "is not a bad thing." Rather, it reflects that the industry is moving into a new phase of the technology cycle from innovation to application where firms will become followers as opposed to first movers. "We get seduced by newness and innovation and not what it can do for our business," he says.
Yet with the theme of "IT Matters," this year's show underscores the importance of technology to the brokerage industry. Estimates are that 12,000 people will shop for technology on the show floor, as compared to 9,000 last year.
"IT plays such a vital role in the securities industry," says Lackritz who sites the rise of new trading platforms such as electronic-communications networks (ECNs) and the world's most successful options exchange, the International Securities Exchange. Mooradian, who says he is optimistic about the industry's recovery, assures technology executives that the industry "will continue to be technology intensive. It's the way we drive productivity," he says. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio