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Tear Down This Wall!

Economic pressures have challenged sell-side firms to break down the information silos that exist across equities and fixed income. But silo busting may not work without dramatic organizational change.

Equities: Sector Trading

One area where technology and economics have combined to help firms break down information silos is within equities. In the past, the person who traded over-the-counter (OTC) technology stocks and the person who traded listed-technology stocks sat on opposite sides of the room. With the move toward sector-based trading, one person may be doing both.

Instead of traders sitting in listed versus OTC departments, traders would be split by industry--telecom, healthcare, etc.

"At least they're on the same sheet of music as to which way the market is headed and which way the industry is headed," says a senior executive who heads equity capital markets for a leading bank. To pull off this transition, the bank, which is moving to this sector-based approach, is rolling out Brass from SunGard Trading Systems as a common-technology platform. "It was a tough rollout because people don't want to change," he says.

On the listed side, the traders previously used Nyfix while the OTC traders used Brass. "The listed guys think their system is the best and the OTC people think their system is best," he says.

"What's new for us is that the electronic portion (of customer orders) would come in ...(and) the trader would take that order and (manually enter) it into two electronic order-management systems - Brass for OTC stocks and Nyfix for listed stocks." After orders came back, the trader would have to manually enter them again. "With one platform, we've been able to automate this," say the executive.

Now the bank is taking the Brass platform into corporate investment banking and expanding it to equity-linked products such as derivatives, exchange-traded funds (ETFs), risk arbitrage and swaps. It's also looking to extend Brass into its retail-brokerage arm as well.

Fixed Income: Silos Within Silos

Nowhere is the proliferation of silos more challenging than in fixed income. Separate trading staffs and sales forces cover products ranging from Treasuries and agencies to mortgages and commercial paper. They utilize disparate technology platforms for trading, analytics and risk management, as well as separate margining and back-office-processing and settlement systems.

"Organizations are product-centric and there is no escape from that," says S. Ramakrishnan, CEO of Reveleus, a Parsippany, N.J.-based software company.

Reveleus uses data warehousing and pre-packaged analytics to collapse silos in financial-services firms. "Even in organizations where you are dealing with the fixed-income space, you (have) a silo dealing with risk as distinct from operations as distinct from dealing with customers. You have silos within silos. It isn't that fixed income is one happy family, they are siloed within," he says.

Then how does a firm stop this cycle of product silos from perpetuating? "The greater opportunity that exists is in collapsing business processes and making the processing common," says Ramakrishnan, For example, having a settlement group that is common across these silos with a common back-office structure enables firms to capitalize on synergies among the people and processes, he says.

Accenture's Cline agrees, "The organizational and business-process implications of doing this (silo busting) are every bit as important as the technology exercise," he says.

When Cline was asked at a fixed-income conference if he thought equity and fixed-income departments would merge, he responded that events were moving in that direction. "I basically told the truth. I felt that was more likely than not to happen."

Meanwhile, with or without organizational changes, Wall Street's technology chiefs are dealing with the here and now and that means consolidating platforms. "Because every legacy dollar we free up allows us an opportunity to invest in new products, that's kind of my fiduciary responsibility to do that," says Merrill's Merchant. With pragmatic thinking you get more dollars than with lots of the announcements and organizational changes."


Does the Left Hand Know What the Right Hand's Doing?

Five years ago, Siebel Systems was able to sell 14 licenses of its sale-force-automation product to different groups within First Union's capital-markets and capital-management-services division, according to Naras Eechambadi, former head of knowledge-based marketing for the bank's enterprise-information group.

According to Eechambadi, there were so many silos within the division which handled mutual funds, brokerage and private-client services that the bank wasn't aware it was spending a couple of hundred thousand dollars with Siebel. First Union has since merged with Wachovia.

"The vendor knew it, but we didn't. They had a much better view of the customer," says Eechambadi, who is now founder and CEO of Quaero, a Charlotte, N.C.-based services firm specializing in customer analysis. Rakesh Shetty, director of Siebel Finance, says multiple copies of Siebel's software were sold to First Union because of the firm's "acquisition-based growth strategy."

"When Wachovia acquired what was then First Union Capital Management Group, we worked very hard with them to say, 'Do not deploy another copy of Siebel in Wachovia,'" says Shetty.

Today, Wachovia's wealth-management unit is on one Siebel platform, which was an expansion of the First Union deployment, he says.

Once First Union figured out that it had been sold multiple licenses of the same product, one of the managers asked Eechambadi to consolidate. His job was to rationalize the multiple licenses and use the bank's leverage to negotiate better prices. "There was resistance to it. People wanted to be cowboys and were difficult to reign in." They all had budgets to spend and it was an entrepreneurial culture, says Eechambadi.

According to a Wachovia spokeswoman, "This is a different team than it was five years ago." She says, "There are (however) valid reasons why different groups are looking at the same thing with different timelines. Among those reasons are "timing, or one group needs to go to market quicker than another group and there are times you stumble on duplicate efforts," she admits.

Checks and balances are now in place, says says the Wachovia spokeswoman. Wachovia now tracks the money spent with each vendor. Service level agreements allow for value discounting if the bank reaches a certain contract level, she says.

Shetty says Wachovia is not alone, citing parallel Siebel projects sprouting up at JPMorgan Chase and Putnam Investments, which Siebel was later asked to help consolidate. Shetty says that Siebel encourages financial services companies to expand existing deployments of Siebel across multiple lines of business, rather than start separate deployments.


Under Pressure

Three pressure points are causing brokerage firms to look seriously at silo-transforming measures, according to S. Ramakrishnan, CEO of Reveleus, a software developer based in Parsippany, N.J.

First, the customer-owning part of the organization wants to have a holistic view of the customer and present the institution as a single entity.

Second, regulators are pressuring institutions to understand enterprise risk across all product silos. That pressure is manifested in Basel II where the focus on capital adequacy is being forced upon institutions.

Third, there is a pressure to understand profitability, and as such, firms are questioning whether they need to have separate back-office or trading systems for products.

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

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