Dear CIO...

Jonathan Beyman is chief of operations and technology at Lehman Brothers, as well as an executive vice president. In addition, Beyman has served as the firm's CIO since 2000.

Question: "What do you believe are some of the industry's top growth areas, and how is Lehman using technology to take advantage of these opportunities?"

I think one of the more interesting - and certainly challenging - areas of growth across the capital markets is the continuing expansion of hedge funds, both in sheer number and as significant market players. As customers, hedge funds, which are unregulated, tend to trade across asset classes and geographic markets. They tend to heavily leverage themselves, and they can be extremely active market participants. Many of them are extremely technology-savvy and make heavy use of analytical models to drive electronically delivered trading strategies. Given the amount of trading activity that they generate, competition for this business is intense and often requires continuing technology development to get an edge in winning it.

What began as taking electronic order flow for exchange-traded products has expanded into providing direct-market access, where customers essentially rent your infrastructure to execute through. It also expanded to online trading of less-liquid, over-the-counter products, including many debt instruments. In addition to expanding electronic connectivity into new product offerings and capabilities, improving quality and reducing execution latency (which is measured in milliseconds) is important. So is providing a menu of service offerings, at various price points. Many of these requirements continue to push the envelope on systems performance, especially where there are legacy, siloed systems involved. For Lehman Brothers, competing in this arena has meant investing in things like our prime brokerage platform, enhancing our auto-quoting and auto-trading applications across a variety of debt and equity products, and providing new services, like value-at-risk margining. It has also meant investing in our credit-risk systems to ensure that we can accurately and quickly monitor potential exposure, across a wide range of market conditions. While hedge funds can be quite attractive customers, the specter of long-term capital still serves as a grim reminder about their possible downside!

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