Last year, revelations that SWIFT had allowed US intelligence agencies access to data pertaining to financial transactions on it network, created a furore with data privacy groups.
SWIFT's assurances at the time that it had only shared limited sets of data with US Treasury failed to assuage the concerns of data privacy groups and led to calls for clearer guidelines on privacy laws and counter-terrorism procedures. Privacy groups expressed concerns that the SWIFT data could be used for non-terrorism related purposes such as taxation monitoring and espionage.
Well, this week the EU and the US reached an agreement on sharing of bank data with the US. That agreement says that SWIFT data can only be used for "counter-terrorism purposes" and kept for a maximum of five years. A European representative will be appointed to monitor how that data is used.
Vice President Frattini, Commissioner responsible for Justice, Freedom and Security, stated: "The EU will have now the necessary guarantees that US Treasury processes data it receives from Swift's mirror server in the USA in a way which takes account of EU data protection principles."
But what does "counter-terrorism purposes" actually mean as when the initial use of SWIFT data was revealed in US newspapers last year, US agencies maintained that they needed to monitor this data to combat terrorist financing.
However, one has to ask, how effective has monitoring of SWIFT data been in combating terrorist financing given that such financing has tended to use non-bank channels such as mobile phones? Furthermore, why does the US even require access to SWIFT data given that banks are meant to have by law, rigorous anti-money laundering measures in place?
In order to bring its own operations in line with EU data protection laws, SWIFT has joined the EU-US Safe Harbor Agreement, which provides a framework for ensuring that customers' data located in the US is protected under similar data privacy principles as those in Europe.
SWIFT has established a data privacy group and also announced a "system re-architecture" yet to be approved by its Board, which means "intra-European messages" will be stored only in Europe and the US. Currently, messages are processed simultaneously at SWIFT's European and US operations centres to prevent data loss.
Friday, June 29, 2007
Wednesday, June 27, 2007
Firms increase adoption of Linux
The open source software movement has certainly come a long way from its early days when vendors such as Microsoft painted it as a 'pariah' of the software industry.
Undoubtedly, Microsoft is not the open source software movement's hugest fan, however even it has been forced to acknowledge increasing industry traction and appetite for open source software by forming a business and strategic partnership with one of Linux's biggest proponents, Novell.
Awareness and uptake of open source software has also increased amongst IT and business users in industry sectors such as financial services firms according to Actuate's 2007 Open Source Software Survey, which surveyed UK, North American and German firms across industry sectors. The survey was first conducted in 2005 and this year's results demonstrated that the proportion of financial services respondents using open source software had increased from 38.8% in 2005 to 45.8% in 2007.
More than 50% of respondents are using Linux open source software with more than 64% of firms perceiving the main benefits to be no licence costs. Other perceived benefits included not being locked into Microsoft (45.2%), vendor independence (43.5%), access to source code (42.6%), flexibility (39.1%) and open platforms (37.4%).
However, despite increasing industry traction and software vendor support for Linux, the survey indicated that challenges remain around long-term support and maintenance, the lack of in-house open source software skills and incompatibility with existing applications, which was highlighted by almost half of respondents.
Microsoft's strategic partnership with Novell was aimed at addressing some of the interoperability issues around firms wanting to operate Windows servers in a Linux environment. Other vendors such as Oracle have also nnounced enterprise level support for Linux in the form of its Enterprise Linux Program.
It ain't easy being 'green'
With political leaders and even the UK's royal family paying lip service to reducing their carbon footprint, businesses appear to be struggling with how to reduce the carbon footprint of their energy intensive IT systems.
The UK Government has set a target of a 20% reduction in greenhouse gas emissions by 2010, but what does this actually mean for business and IT managers? Recent news reports indicated that Prince Charles had reduced his travel carbon footprint by 9%, but how significant is that in terms of the overall reduction required to effectively combat the impact of greenhouse gas emissions on the environment?
A recent survey conducted by the UK-based Green Technology Initiative found that whilst 90% of UK businesses felt that tackling the carbon footprint of IT systems was integral to an overall green strategy, 70% had no concrete plans in place to reduce their carbon emissions.
So whilst businesses may support the concept of 'greening' IT, there is no clear
cut guidance on how they can achieve that. The knowledge gap is clearly highlighted by the fact that 95% of survey respondents did not know how energy efficient their
IT systems were because they had no means of measuring it.
“What we are doing in IT today is not sustainable. Systems efficiency is the cheapest and easiest way of reducing the carbon footprint of the work you do and delivered properly it has the benefit of bringing down costs across the board. Whilst undoubtedly UK enterprises are willing to take action, many lack the incentive, knowledge and resources to make immediate changes,” says Dan Sutherland, founder and acting chair of the Green Technology Initiative.
When reducing a company's carbon emissions can be as simple as flicking a switch in terms of switching off systems that are not in use, it appears that firms are relying on software vendors, governments and manufacturers to take the lead without considering what they can do themselves to reduce their carbon emissions. More than 50% of respondents to Green Technology Initiative's survey had still not caught on to the idea of reducing power costs and energy consumption by turning off unused systems.
With so much media attention on high carbon emitters, it appears that the penny has not dropped in terms of how businesses in general can contribute to the battle to reduce carbon emissions without relatively little upfront investment.
Tuesday, June 26, 2007
The LSE expands into Europe
I have been particularly vocal about the London Stock Exchange's 'go-it-alone' strategy in light of trans-Atlantic consolidation between competing exchanges NYSE-Euronext and Nasdaq OMX, as well as the increasing threat of competition from emerging MTFs such as Project Turquoise.
Well the latest news is that the LSE instead of pursuing mergers with its larger rivals has decided to expand into Europe by buying Milan's Borsa Italiana for approximately £1.1bn. The question is, will it be enough to fend off competition from its larger consolidated European rivals and emerging competitors such as Project Turquoise which is in advanced negotiations with the Nordic Exchange's OMX Group to use it as its sole technology partner.
However, some bloggers, including myself, question whether the LSE's expansion strategy is a viable one going forward given that Borsa Italiana will not give the London exchange the global leverage cross-Atlantic mergers have given Euronext and now OMX.
For more opinions on the LSE's new-found expansion strategy, which some believe will not be enough to counter the threat from Project Turquoise, go to The CityUnslicker.
Well the latest news is that the LSE instead of pursuing mergers with its larger rivals has decided to expand into Europe by buying Milan's Borsa Italiana for approximately £1.1bn. The question is, will it be enough to fend off competition from its larger consolidated European rivals and emerging competitors such as Project Turquoise which is in advanced negotiations with the Nordic Exchange's OMX Group to use it as its sole technology partner.
However, some bloggers, including myself, question whether the LSE's expansion strategy is a viable one going forward given that Borsa Italiana will not give the London exchange the global leverage cross-Atlantic mergers have given Euronext and now OMX.
For more opinions on the LSE's new-found expansion strategy, which some believe will not be enough to counter the threat from Project Turquoise, go to The CityUnslicker.
Wednesday, June 13, 2007
Move over traditional outsourcing
I have been watching the outsourcing market with interest for some months and am somewhat bemused by the conflicting stories one reads about firms' appetite for outsourcing, particularly offshore outsourcing.
As the initial hype around outsourcing has died down and firms that were early adopters have had the chance to learn from and share their experiences, there is no doubt that some of the lustre has gone off outsourcing in terms of the initial 50% cost savings some firms touted and the "hidden costs" that have emerged when it comes to the need to actively manage and monitor offshore outsourcing relationships.
Data privacy concerns have also been raised following allegations that offshore call centres were selling customer data. Eager to preserve its reputation as a major outsourcing and offshoring centre, India recently announced the formation of the Data Security Council of India (DSCI), a self-regulatory member organisation that will be run by the Indian IT and software association, Nasscom.
Arguably the Council's formation is a long overdue measure that recognises the concerns of foreign firms outsourcing customer data to India. The National Outsourcing Association says concerns have grown over the past few years over data security lapses that have occurred, fuelled by 'mud slinging' by the British tabloid press about alleged security breaches.
Although the NOA says that security breaches are few and far between it stated that the Indian government - and the governments of other offshore and nearshore destinations - needed to openly demonstrate that they recognise the problems around data security and are actively doing something about it.
Securing data that is outsourced or offshored to a third party provider is even more important now that the next wave of outsourcing is encompassing content and document management, as well as “knowledge process outsourcing” or KPO.
According to EquaTerra research, KPO, which encompasses a broad range of processes such as market research, financial analysis, M&A due diligence and related M&A legal work, is gathering momentum.
While the Indian market may be suited to this form of outsourcing, with some major investment banks outsourcing financial analysis and research to India in recent months, KPO is a surprising trend given banks' general reluctant to outsource data, which is the lifeblood of most companies.
John Boyle, EquaTerra’s managing director, Financial Services, says:
However, instead of directly outsourcing KPO work to an offshore third party provider, Boyle says financial services firms still prefer to manage the process themselves by establishing captive operations to perform KPO and related work in offshore locations. Increasingly it seems traditional outsourcing models are being challenged by alternative approaches such as captives and shared service operations.
As the initial hype around outsourcing has died down and firms that were early adopters have had the chance to learn from and share their experiences, there is no doubt that some of the lustre has gone off outsourcing in terms of the initial 50% cost savings some firms touted and the "hidden costs" that have emerged when it comes to the need to actively manage and monitor offshore outsourcing relationships.
Data privacy concerns have also been raised following allegations that offshore call centres were selling customer data. Eager to preserve its reputation as a major outsourcing and offshoring centre, India recently announced the formation of the Data Security Council of India (DSCI), a self-regulatory member organisation that will be run by the Indian IT and software association, Nasscom.
Arguably the Council's formation is a long overdue measure that recognises the concerns of foreign firms outsourcing customer data to India. The National Outsourcing Association says concerns have grown over the past few years over data security lapses that have occurred, fuelled by 'mud slinging' by the British tabloid press about alleged security breaches.
Although the NOA says that security breaches are few and far between it stated that the Indian government - and the governments of other offshore and nearshore destinations - needed to openly demonstrate that they recognise the problems around data security and are actively doing something about it.
Securing data that is outsourced or offshored to a third party provider is even more important now that the next wave of outsourcing is encompassing content and document management, as well as “knowledge process outsourcing” or KPO.
According to EquaTerra research, KPO, which encompasses a broad range of processes such as market research, financial analysis, M&A due diligence and related M&A legal work, is gathering momentum.
While the Indian market may be suited to this form of outsourcing, with some major investment banks outsourcing financial analysis and research to India in recent months, KPO is a surprising trend given banks' general reluctant to outsource data, which is the lifeblood of most companies.
John Boyle, EquaTerra’s managing director, Financial Services, says:
“The growth in KPO is intriguing because it involves work that was traditionally viewed as too strategic to outsource, or where outsourcing was not viable because candidate services providers lacked the skills or experience required to perform the work. But these perceptions are changing. While in most cases KPO today involves rote work and number crunching, the breadth and depth of work being performed is expanding as buyers gain comfort with the model and suppliers’ skills and levels of context improve."
However, instead of directly outsourcing KPO work to an offshore third party provider, Boyle says financial services firms still prefer to manage the process themselves by establishing captive operations to perform KPO and related work in offshore locations. Increasingly it seems traditional outsourcing models are being challenged by alternative approaches such as captives and shared service operations.
Monday, June 11, 2007
More banks may join Project Turquoise
So much for sabre rattling. The prospect of multilateral trading facilities setting up in opposition to the national exchanges is not just a bunch of the world's leading investment banks making a lot of noise in order to get the national exchange monopolies to drop their trading costs.
When Project Turquoise, the MTF announced by seven leading investment banks to challenge the monopoly on equity trading by the national exchanges, was first announced, some suggested it was merely a ploy by the investment banks to get the stock exchanges to reduce their trading costs. Once the exchanges had dropped their tariffs, it would disappear into thin air.
Well some of the exchanges are already reviewing their tariffs and having announced the appointment of EuroCCP (European Central Counterparty), a subsidiary of the DTCC, as its clearing agent, Project Turquoise, appears to be a goer. According to a Financial News report, Société Générale and BNP Paribas may also be joining Project Turquoise.
All Project Turquoise has to do now is choose a trading platform (believed to be a toss up between the Nordic Exchange Group OMX's technology and Instinet's Chi-X), appoint a CEO, attract sufficient liquidity and Bob's your uncle.
When Project Turquoise, the MTF announced by seven leading investment banks to challenge the monopoly on equity trading by the national exchanges, was first announced, some suggested it was merely a ploy by the investment banks to get the stock exchanges to reduce their trading costs. Once the exchanges had dropped their tariffs, it would disappear into thin air.
Well some of the exchanges are already reviewing their tariffs and having announced the appointment of EuroCCP (European Central Counterparty), a subsidiary of the DTCC, as its clearing agent, Project Turquoise, appears to be a goer. According to a Financial News report, Société Générale and BNP Paribas may also be joining Project Turquoise.
All Project Turquoise has to do now is choose a trading platform (believed to be a toss up between the Nordic Exchange Group OMX's technology and Instinet's Chi-X), appoint a CEO, attract sufficient liquidity and Bob's your uncle.
Thursday, June 07, 2007
The 'Project Turquoise' of payments
Lafferty Group has an interesting news story on its web site about European banks being in "secret discussions" to set up a pan-European debit card scheme to rival Visa's and MasterCard's.
According to the report on Lafferty, the banks involved in the discussions are Societe Generale, Deutsche Bank, Dresdner Bank, Commerzbank, ABN AMRO, ING and Rabobank. The report states that they are "unhappy" with the likelihood that MasterCard's Maestro may become the dominant provider of debit card network services in Europe.
The European Commission and the European Central Bank have also expressed concerns about competition in the debit cards space in Europe. The Lafferty report says discussions amongst the banks are in the formative stages and that they are considering leveraging the work already done by the Euro Alliance of Payment Schemes, which has established bilateral links between domestic card processors.
There has been a lot of activity on the card processing side in preparation for the Single Euro Payment Area, with Voca joining forces with Link to give it card processing capabilities so it can compete more effectively with the likes of Equens in the Netherlands. US-based First Data is also looking to become a leading global card processor and has made a number of European acquisitions in the last 12 to 18 months.
Italy's SIA-SSB, the result of a merger between Società Interbancaria per l’Automazione – Cedborsa S.p.A. and Società per I Servizi Bancari – SSB S.p.A., is also a leading European debit and credit card processor with 48 million payment cards issued and more than three billion transactions managed in 2006. It also recently acquired Hungarian card processor, GBC.
The Lafferty Report says that "there are contrasting opinions" on the level of progress achieved by the banks holding the secret discussions, which suggests that not much progress has been achieved at all. This is not the first time that banks have considered setting up a rival debit card scheme, but previously there was not enough support from the banks to do anything.
What is different this time? Well SEPA is in the air, anything is possible, but banks in the payments space have not been as fleet of foot as their investment bank counterparts when it comes to setting up rival market schemes and infrastructures.
We have seen Project Turquoise, a multi-lateral trading facility set up by seven leading investment banks to rival the domestic exchanges in response to regulatory pressures from MiFID. Are we likely to see the 'Project Turquoise' of the debit card world being announced by leading European payment banks any time soon? It seems unlikely.
According to the report on Lafferty, the banks involved in the discussions are Societe Generale, Deutsche Bank, Dresdner Bank, Commerzbank, ABN AMRO, ING and Rabobank. The report states that they are "unhappy" with the likelihood that MasterCard's Maestro may become the dominant provider of debit card network services in Europe.
The European Commission and the European Central Bank have also expressed concerns about competition in the debit cards space in Europe. The Lafferty report says discussions amongst the banks are in the formative stages and that they are considering leveraging the work already done by the Euro Alliance of Payment Schemes, which has established bilateral links between domestic card processors.
There has been a lot of activity on the card processing side in preparation for the Single Euro Payment Area, with Voca joining forces with Link to give it card processing capabilities so it can compete more effectively with the likes of Equens in the Netherlands. US-based First Data is also looking to become a leading global card processor and has made a number of European acquisitions in the last 12 to 18 months.
Italy's SIA-SSB, the result of a merger between Società Interbancaria per l’Automazione – Cedborsa S.p.A. and Società per I Servizi Bancari – SSB S.p.A., is also a leading European debit and credit card processor with 48 million payment cards issued and more than three billion transactions managed in 2006. It also recently acquired Hungarian card processor, GBC.
The Lafferty Report says that "there are contrasting opinions" on the level of progress achieved by the banks holding the secret discussions, which suggests that not much progress has been achieved at all. This is not the first time that banks have considered setting up a rival debit card scheme, but previously there was not enough support from the banks to do anything.
What is different this time? Well SEPA is in the air, anything is possible, but banks in the payments space have not been as fleet of foot as their investment bank counterparts when it comes to setting up rival market schemes and infrastructures.
We have seen Project Turquoise, a multi-lateral trading facility set up by seven leading investment banks to rival the domestic exchanges in response to regulatory pressures from MiFID. Are we likely to see the 'Project Turquoise' of the debit card world being announced by leading European payment banks any time soon? It seems unlikely.
Wednesday, June 06, 2007
MiFID readiness - a long way off
Having attended more than my fair share of events on the Markets in Financial Instruments Directive (MiFID), one has grown a little tired of hearing consultants' rhetoric that sell-side firms should not treat MiFID as yet another compliance issue, but in terms of the strategic benefits it could bring to their business.
Let's be frank; apart from the large sell-side firms which see MiFID as an opportunity to widen the gap between them and their nearest competitors, most firms are still treating MiFID as a compliance issue. Cultural and market differences also appear to play a part in how MiFID is perceived by firms and national regulators.
As a lot of Europe's stock trading activity is concentrated in financial centres such as London, it is no surprise that the UK was amongst the three member states to transpose MiFID into national law by the 31 January deadline. All other member states, including key financial centres such as France and Germany have dragged their heels.
At SunGard's annual European client event yesterday in Lake Como, Italy, the findings of a survey of 200 German investment firms and their preparedness for MiFID were presented. The survey was conducted in February this year following on from a similar survey a year earlier.
While more than 50% of firms reported that they were "very familiar" with MiFID in the 2007 survey, compared with 15% in 2006, when it comes to budget planning and seeking new solutions to address the impact of best execution requirements under MiFID on their IT strategies, the figures were less impressive. With the 1 November deadline for MiFID a mere four and a half months away, only 44% of German firms were in the implementation phase and 47.5% had analysed the impact of MiFID on their business strategy.
The point is that whilst a handful of investment firms may view MiFID as a strategic opportunity and may be further advanced in their preparations, firms in other European countries do not view it as strategically and it is doubtful that they will even want to become 'systematic internalisers' under MiFID. Hence they are likely to invest less time and money on MiFID than say top tier investment firms.
Another factor is that outside of the UK, a number of European markets support the concentration rule, which demands that all trading activity occur on the national exchange. Under MiFID the concentration rule will be removed, but there are concerns that in an effort to preserve the status quo, some European securities regulators will just "cherry pick" bits of MiFID to enforce.
The EC certainly have a job ahead of them to ensure that MiFID is implemented consistently and in a harmonised fashion across all member states. Not only that, the Commission's commencement of infringement proceedings against member states that failed to transpose MiFID into national law by the 31 January, is unlikely to have the desired effect.
Taking member states to court is typically a lengthy process, which is not going to speed up MiFID's implementation. Perhaps that is why the Commission has resorted to "naming and shaming" techniques such as publishing information pertaining to member states' progress as well as league tables. 2007 may be the year of MiFID's introduction, but it is hardly the "year of the MiFID" as most firms and member states "have a long way to go before [they] can talk about MiFID readiness."
Let's be frank; apart from the large sell-side firms which see MiFID as an opportunity to widen the gap between them and their nearest competitors, most firms are still treating MiFID as a compliance issue. Cultural and market differences also appear to play a part in how MiFID is perceived by firms and national regulators.
As a lot of Europe's stock trading activity is concentrated in financial centres such as London, it is no surprise that the UK was amongst the three member states to transpose MiFID into national law by the 31 January deadline. All other member states, including key financial centres such as France and Germany have dragged their heels.
At SunGard's annual European client event yesterday in Lake Como, Italy, the findings of a survey of 200 German investment firms and their preparedness for MiFID were presented. The survey was conducted in February this year following on from a similar survey a year earlier.
While more than 50% of firms reported that they were "very familiar" with MiFID in the 2007 survey, compared with 15% in 2006, when it comes to budget planning and seeking new solutions to address the impact of best execution requirements under MiFID on their IT strategies, the figures were less impressive. With the 1 November deadline for MiFID a mere four and a half months away, only 44% of German firms were in the implementation phase and 47.5% had analysed the impact of MiFID on their business strategy.
The point is that whilst a handful of investment firms may view MiFID as a strategic opportunity and may be further advanced in their preparations, firms in other European countries do not view it as strategically and it is doubtful that they will even want to become 'systematic internalisers' under MiFID. Hence they are likely to invest less time and money on MiFID than say top tier investment firms.
Another factor is that outside of the UK, a number of European markets support the concentration rule, which demands that all trading activity occur on the national exchange. Under MiFID the concentration rule will be removed, but there are concerns that in an effort to preserve the status quo, some European securities regulators will just "cherry pick" bits of MiFID to enforce.
The EC certainly have a job ahead of them to ensure that MiFID is implemented consistently and in a harmonised fashion across all member states. Not only that, the Commission's commencement of infringement proceedings against member states that failed to transpose MiFID into national law by the 31 January, is unlikely to have the desired effect.
Taking member states to court is typically a lengthy process, which is not going to speed up MiFID's implementation. Perhaps that is why the Commission has resorted to "naming and shaming" techniques such as publishing information pertaining to member states' progress as well as league tables. 2007 may be the year of MiFID's introduction, but it is hardly the "year of the MiFID" as most firms and member states "have a long way to go before [they] can talk about MiFID readiness."
Tuesday, June 05, 2007
SunGard is "stronger" since going private
Oh what a difference private equity investment makes. At least that is the message SunGard's CEO Chris Conde was keen to impart at its annual European customer event SunGard Europa, which is being held on the shores of Lake Como, Italy.
In 2005 SunGard was acquired by a consortium of private equity investors led by Silver Lake Partners, and Conde appears to be prefer life as the CEO of a private company, saying that SunGard was stronger since it went private, growing by a factor of three. Total number of employees at SunGard has increased to 18,000 and it has made approximately 20 acquisitions since going private.
Harold Finders, division CEO, Financial Systems, SunGard, said since going private, SunGard had 50 R&D programs up and running at the same time, compared with 10 when it was a public company.
However, with so many solutions servicing different product silos within financial services firms, one of the chief criticisms of SunGard has been its 'siloed' approach to product development.
Today at Lake Como, SunGard was keen to challenge that perception by emphasizing its Common Services Architectures (CSA), which allows it to deliver more "flexible" software solutions by bringing together applications developed in different parts of SunGard's business.
For example, using CSA, the SunGard STeP and AvantGard businesses developed its new Real-Time Liquidity Management solution, which combines aspects of AvantGard's liquidity management capabilities with STep's exception management solutions.
Other examples of SunGard's CSA include its new Asset Arena solution, which maps different asset management workflows and pulls together its various asset management solutions "in a more integrated way". "[CSA] will turn SunGard from a siloed organisation into a more integrated one," remarked Hugh Grant, director, global IT, Credit Suisse and a member of SunGard's CSA Customer Advisory Board.
Using Business Process Modelling, service-oriented architecture (SOA) and its CSA, Finders said SunGard would be able to bring solutions to market more quickly, and lower total cost of ownership for customers.
Darren Wesemann, CTO, Financial Systems, SunGard, also highlighted SunGard's Infinity platform for delivering Software as a Service (Saas) or solutions on-demand. Using Infinity, he said SunGard would be able to leverage its solutions/assets on-demand and using a business modelling process engine, develop solutions that were more compatible with client's business needs.
Friday, June 01, 2007
Eating humble pie
Although the ink is not quite dry on the recent announcement that Nasdaq and the OMX Nordic Exchange will join forces to create yet another trans-Atlantic exchange, the real news surely is what does this mean for the 'go-it-alone' London Stock Exchange (LSE)?
With the NYSE Euronext deal completed and the Nasdaq OMX combination giving both exchanges a strong technology and derivatives card to play, isn't it time that the LSE "swallowed its pride," stopped being a "prima donna" and secured a pan-European or cross-Atlantic merger of its own.
Operating profit (up 55% to £185.6 million for the year ended 31 March 2007) and primary market activity on the exchange may be healthy, but Frédéric Ponzo, managing director of consultancy, NET2S, believes the competitive landscape will change next year as NYSE Euronext and Nasdaq OMX look to increase their global market share and new market entrants such as Project Turquoise makes its presence felt.
Although Ponzo does not believe that the competition from ECNs and multilateral trading facilities will be as fierce as some anticipate, by 'going it alone' the LSE currently does not have the global reach of the trans-Atlantic exchanges, nor does it have their derivatives capabilities.
Could it be that the LSE may have to eat humble pie and seriously reconsider merging with the likes of Deutsche Börse in order to sustain its foothold not only in the UK but the European, if not global market? Or will national pride and cultural differences continue to stand in the way of a deal that could make sense in the longer term if not in the short term?
Monday, May 21, 2007
The next generation
Further to my post of the 14 May entitled, My Generation, outlining how Ajax is being used to build richer web applications particularly for trading front-ends, Caplin Systems announced the launch of such an application, Caplin Trader, today.
Caplin Trader is described as an "ready-made application that enables banks to build high-function multi-product trading portals in FX and fixed income." A major bank is deploying Caplin Trader, details of which are expected to be announced at SIFMA's Technology Management Conference in June.
"We are seeing a lot more people saying that in fixed income a bank portal is a requirement, which follows what happened in FX," says Paul Caplin, CEO, Caplin Systems. And although a number of banks already have web-based FX trading portals, Caplin says it is seeing a "refresh" of single bank FX portals banks built three or four years ago.
Caplin Trader, which sits on top of Caplin's integrated data and messaging platform, is targeted at the next generation of trading front-ends, which Caplin says will be much richer applications in terms of look, feel and functionality thanks to new technologies such as Ajax.
"There seems to be a lot of customers that want trading functionality integrated with useful information (prices, research, news), which is a way for banks to entice cutomers to trade directly with them," Caplin explains.
Caplin Trader's "drag-and-drop Ajax framework" includes standard components such as product grids, trading panels, trade blotters, trading tickets, product and instrument search, charts and news displays. Banks can more easily aggregate various sources of content on one screen by pulling it together in a browser. This is what is referred to in the biz as "mashups."
Wednesday, May 16, 2007
SEPA slippage
After much stalling and compromising, the Payment Services Directive (PSD), which is the legal framework for the Single Euro Payments Area (SEPA) has finally been passed. But when you think that the PSD was first published in 2005 and it has taken two years to agree on the content of it, there appears to be some 'slippage' around SEPA.
The PSD will now be transposed into national law by 1 November 2009 instead of November 2007, but the transition to SEPA will begin from 1 January 2008. The 'slippage' is even more apparent when one considers that SEPA as a concept has been on the table since 2000, and what has the industry got to show for it?
Apart from STEP2, some ACHs with pan-European ambitions and talk of SEPA-compliant instruments, not a hell of a lot says some banks, who according to a knowledgeable industry source, are starting to draw comparisons between SEPA and that other much-talked about EC regulation, MiFID.
The Markets in Financial Instruments Directive had leading investment banks announcing the development of Project Boat, a pre- and post-trade reporting service for off-exchange equity trades, and Project Turquoise, a multi-lateral trading facility.
No such announcements have been made by the leading payment banks for SEPA. However, according to the same knowledgeable source, there is talk of a Project Turquoise for bilateral clearing between banks. This would effectively mean that some of Europe's major payment processors could club together to provide cross-border clearing for their own pan-European direct debits instead of using the pan-European ACHs; STEP 2, VocaLink and Equens, which are hoping to capture a share of this business.
But given the different competitive dynamics between the worlds of payments and investment banking, and the ability of investment banks to move much more quickly, none of us are holding our breaths when it comes to the payments' equivalent of Project Turquoise emerging any time soon.
The PSD will now be transposed into national law by 1 November 2009 instead of November 2007, but the transition to SEPA will begin from 1 January 2008. The 'slippage' is even more apparent when one considers that SEPA as a concept has been on the table since 2000, and what has the industry got to show for it?
Apart from STEP2, some ACHs with pan-European ambitions and talk of SEPA-compliant instruments, not a hell of a lot says some banks, who according to a knowledgeable industry source, are starting to draw comparisons between SEPA and that other much-talked about EC regulation, MiFID.
The Markets in Financial Instruments Directive had leading investment banks announcing the development of Project Boat, a pre- and post-trade reporting service for off-exchange equity trades, and Project Turquoise, a multi-lateral trading facility.
No such announcements have been made by the leading payment banks for SEPA. However, according to the same knowledgeable source, there is talk of a Project Turquoise for bilateral clearing between banks. This would effectively mean that some of Europe's major payment processors could club together to provide cross-border clearing for their own pan-European direct debits instead of using the pan-European ACHs; STEP 2, VocaLink and Equens, which are hoping to capture a share of this business.
But given the different competitive dynamics between the worlds of payments and investment banking, and the ability of investment banks to move much more quickly, none of us are holding our breaths when it comes to the payments' equivalent of Project Turquoise emerging any time soon.
My generation
Despite all the hoopla around the internet it is only in the last four to five years that online trading of FX and equities has really taken off. Even then, despite the proliferation of online platforms for trading FX, as I reported from Miami a few weeks back, a surprising number of companies still prefer the sound of a voice on the other end of the phone rather than the click of a mouse.
Having said that, it seems the e-trading 'bug' is catching on and is encompassing other asset classes such as fixed income, at least that is what Paul Caplin, CEO, Caplin Systems is telling us. "We are seeing a wider requirement particularly in fixed income and FX for a high-function web front-end for trading," says Caplin.
But hang on a minute, haven't most banks already built web trading front ends particularly in the FX space where there is a multitude of single bank and multi-bank sites for trading FX online? Well, yes, says Caplin, but he describes some of these single bank web front-ends as 'primitive', mainly because they only support Request For Quote (RFQ) when the market is moving towards 'streaming' prices.
Also he says a number of traditional web trading applications were built using Java, which, according to Caplin, is considered to be no longer viable for trading front-ends.
Caplin says the next generation of e-trading platforms will feature richer web applications but around AJAX and "enterprise mashups" or web aggregation where multiple content is aggregated on one screen or web browser.
What all this amounts to effectively is that the next gen of e-trading applications are likely to be much more richer in functionality, with banks being able to more easily and dynamically display multiple content (prices, research, news) on one screen across multiple products (FX, fixed income).
Press embargoes prevent me from going into any more detail at this stage, but Caplin will be making an announcement on Monday concerning the next generation of e-trading applications it is working on.
Having said that, it seems the e-trading 'bug' is catching on and is encompassing other asset classes such as fixed income, at least that is what Paul Caplin, CEO, Caplin Systems is telling us. "We are seeing a wider requirement particularly in fixed income and FX for a high-function web front-end for trading," says Caplin.
But hang on a minute, haven't most banks already built web trading front ends particularly in the FX space where there is a multitude of single bank and multi-bank sites for trading FX online? Well, yes, says Caplin, but he describes some of these single bank web front-ends as 'primitive', mainly because they only support Request For Quote (RFQ) when the market is moving towards 'streaming' prices.
Also he says a number of traditional web trading applications were built using Java, which, according to Caplin, is considered to be no longer viable for trading front-ends.
Caplin says the next generation of e-trading platforms will feature richer web applications but around AJAX and "enterprise mashups" or web aggregation where multiple content is aggregated on one screen or web browser.
What all this amounts to effectively is that the next gen of e-trading applications are likely to be much more richer in functionality, with banks being able to more easily and dynamically display multiple content (prices, research, news) on one screen across multiple products (FX, fixed income).
Press embargoes prevent me from going into any more detail at this stage, but Caplin will be making an announcement on Monday concerning the next generation of e-trading applications it is working on.
Monday, May 14, 2007
MiFID - It's as easy as 123
Last week I managed to muster up the energy to attend yet another event on MiFID (Markets in Financial Instruments Directive). With the November deadline for MiFID's implementation looming, everyone seems eager to jump aboard the MiFID 'gravy train' as last minute preparations grind into gear.
Last week's event, which was hosted by the MiFID think tank, JWG-IT,had the interesting working title of, "MiFID 123 Go," which could be misinterpreted given that the 70 or so people that turned up for the event were probably hoping to hear something along the lines of,'MiFID, it's as easy as 123."
The 123 was in fact a reference to how many days remaining till the November live date, and given that MiFID is what the industry terms a "principles-based" regulation, PJ DiGiammarino, CEO of JWG-IT, informed the gathered 'hordes' that they could not necessarily rely on the regulators to provide them with much guidance (no surprises there then), and that it would take three to four years before the MiFID transition was completed.
With that in mind, Di Giammarino kicked the evening off on a 'light' note telling firms how they could "stay out of jail," pointing to a recent example of a major US sell-side firm that was fined $8 million for "failure of price transparency".
DiGiammarino joked that at least with Sarbanes-Oxley, another piece of controversial regulation,it was only the CFO that could go to jail if financial and accounting practices were not compliant. However, with MiFID it is not just one person that could be in the firing line.
It all started to sound like a game of monopoly. 'Do not pass go, go straight to jail,' but perhaps that is an indication of how real MiFID has suddenly become for a number of firms and countries that its seems are ill-prepared and equipped to cope with the all-encompassing MiFID regulation.
Seventy-five percent of EU member countries did not make the 31 January deadline for transposing MiFID into national law, and European Commissioner for Internal Market and Services, Charlie McCreevy has threatened stragglers with "infringement" proceedings.
"US firms are pretty far up the curve and are forcing the buy side along with them," said DiGiammarino. Yet, with different EU member states transposing to MiFID at different times (Sweden in August, Netherlands in November and Spain after November), it could be a potential recipe for disaster.
According to PJ, any big market [like the Netherlands] that waits till the end to transpose, risks creating a "hybrid" environment, which in the event of a bear market, could result in a very "fragmented Europe." He cited the example of Sweden, which provides transaction reporting support for the rest of the Nordic countries. If it does not make the August 2007 transposition date, then there will be repercussions for the wider market.
Last week's event, which was hosted by the MiFID think tank, JWG-IT,had the interesting working title of, "MiFID 123 Go," which could be misinterpreted given that the 70 or so people that turned up for the event were probably hoping to hear something along the lines of,'MiFID, it's as easy as 123."
The 123 was in fact a reference to how many days remaining till the November live date, and given that MiFID is what the industry terms a "principles-based" regulation, PJ DiGiammarino, CEO of JWG-IT, informed the gathered 'hordes' that they could not necessarily rely on the regulators to provide them with much guidance (no surprises there then), and that it would take three to four years before the MiFID transition was completed.
"Regulators are not going to comment in any great detail on what firms are going to do," Di Giammarino stated. "Firms may want a benchmark on best execution, but it is not going to happen."
With that in mind, Di Giammarino kicked the evening off on a 'light' note telling firms how they could "stay out of jail," pointing to a recent example of a major US sell-side firm that was fined $8 million for "failure of price transparency".
DiGiammarino joked that at least with Sarbanes-Oxley, another piece of controversial regulation,it was only the CFO that could go to jail if financial and accounting practices were not compliant. However, with MiFID it is not just one person that could be in the firing line.
It all started to sound like a game of monopoly. 'Do not pass go, go straight to jail,' but perhaps that is an indication of how real MiFID has suddenly become for a number of firms and countries that its seems are ill-prepared and equipped to cope with the all-encompassing MiFID regulation.
Seventy-five percent of EU member countries did not make the 31 January deadline for transposing MiFID into national law, and European Commissioner for Internal Market and Services, Charlie McCreevy has threatened stragglers with "infringement" proceedings.
"US firms are pretty far up the curve and are forcing the buy side along with them," said DiGiammarino. Yet, with different EU member states transposing to MiFID at different times (Sweden in August, Netherlands in November and Spain after November), it could be a potential recipe for disaster.
According to PJ, any big market [like the Netherlands] that waits till the end to transpose, risks creating a "hybrid" environment, which in the event of a bear market, could result in a very "fragmented Europe." He cited the example of Sweden, which provides transaction reporting support for the rest of the Nordic countries. If it does not make the August 2007 transposition date, then there will be repercussions for the wider market.
Thursday, May 03, 2007
What will the bank of the future look like?
JPMorgan has always been one for making acquisitions that cause other banks to sit up and take notice, even though they may scratch their heads, thinking, 'How does that fit within banking?'
The first one, that perhaps caused other banks to pay attention, was the JPMorgan's $129 million acquisition of Vastera, a global trade management software and service applications provider (otherwise known as trade logistics). Given Vastera's focus on the physical supply chain, some competing banks questioned the value of a bank moving beyond its traditional financing role into the physical supply chain .
JPMorgan has since stated that the Vastera acquisition is not about being in the logistics business, but about positioning the bank and its trade services business, which the Vastera business is integrated with, much earlier in the supply chain to provide firms with greater transparency and visibility around documentary compliance governing the inward and outward flow of goods into particular countries.
Well, as Aite Group points out, information pertaining to the movement of goods can have a knock-on effect on a company's working capital:
"Tying the physical movement of goods to the financial activity surrounding them provides very valuable information to treasurers regarding expected cash flows;this is referred to as the “order-to-cash” cycle."
Not all banks, however, agree with JPMorgan's approach and some have questioned the value of the Vastera acquisition, particularly in terms of whether the bank will gain enough customers from the deal to recoup its investment.
JPMorgan's buying spree in the "order-to-cash" cycle has not stopped there. Recently it announced its acquisition of the business settlement network, Xign, which links suppliers with buyers. JPMorgan already worked with Xign, which provided the e-invoicing component for the bank's proprietary Order-to-Pay Solution. But by buying the business settlement network it has effectively shut out the other banks (Citi, Wachovia, Wells Fargo, et al) that Xign also worked with.
By fully acquiring Xign, JPMorgan Chase is positioned to take advantage of the wide and deep flows of information that are generated by Xign’s network and technology. Assuming JPMorgan Chase can tap into that data with the permission of the trading parties, they are positioned to leverage Xign’s capabilities in ways that other participating banks cannot," Aite Group writes.
For a 'conservative' Wall Street bank, JPMorgan appears to be 'thinking outside the box'. One senior exec within the bank remarked to me recently about the 'strange' things the bank was doing in terms of pursuing non-traditional business lines, including the Vastera acquisition and the bank's foray into document (invoices and cheques) printing and archiving.
It is no secret why banks want to embed themselves deeper into companies' supply chains; they want to make up for revenues lost through declining letter of credit volumes; and they also want the opportunity to sell financing to their customer's (the buyer) suppliers.
However, one has to ask whether some of the solutions banks are developing around the corporate supply chain are what companies are really looking for? Most corporates I have spoken to say they do not want banks to get more involved in their supply chains and that they understand their supply chains better than the banks.
So is all this 'hoopla' surrounding the corporate supply chain about what the banks want or is about solutions corporates are really looking for?
The first one, that perhaps caused other banks to pay attention, was the JPMorgan's $129 million acquisition of Vastera, a global trade management software and service applications provider (otherwise known as trade logistics). Given Vastera's focus on the physical supply chain, some competing banks questioned the value of a bank moving beyond its traditional financing role into the physical supply chain .
JPMorgan has since stated that the Vastera acquisition is not about being in the logistics business, but about positioning the bank and its trade services business, which the Vastera business is integrated with, much earlier in the supply chain to provide firms with greater transparency and visibility around documentary compliance governing the inward and outward flow of goods into particular countries.
Well, as Aite Group points out, information pertaining to the movement of goods can have a knock-on effect on a company's working capital:
"Tying the physical movement of goods to the financial activity surrounding them provides very valuable information to treasurers regarding expected cash flows;this is referred to as the “order-to-cash” cycle."
Not all banks, however, agree with JPMorgan's approach and some have questioned the value of the Vastera acquisition, particularly in terms of whether the bank will gain enough customers from the deal to recoup its investment.
JPMorgan's buying spree in the "order-to-cash" cycle has not stopped there. Recently it announced its acquisition of the business settlement network, Xign, which links suppliers with buyers. JPMorgan already worked with Xign, which provided the e-invoicing component for the bank's proprietary Order-to-Pay Solution. But by buying the business settlement network it has effectively shut out the other banks (Citi, Wachovia, Wells Fargo, et al) that Xign also worked with.
By fully acquiring Xign, JPMorgan Chase is positioned to take advantage of the wide and deep flows of information that are generated by Xign’s network and technology. Assuming JPMorgan Chase can tap into that data with the permission of the trading parties, they are positioned to leverage Xign’s capabilities in ways that other participating banks cannot," Aite Group writes.
For a 'conservative' Wall Street bank, JPMorgan appears to be 'thinking outside the box'. One senior exec within the bank remarked to me recently about the 'strange' things the bank was doing in terms of pursuing non-traditional business lines, including the Vastera acquisition and the bank's foray into document (invoices and cheques) printing and archiving.
It is no secret why banks want to embed themselves deeper into companies' supply chains; they want to make up for revenues lost through declining letter of credit volumes; and they also want the opportunity to sell financing to their customer's (the buyer) suppliers.
However, one has to ask whether some of the solutions banks are developing around the corporate supply chain are what companies are really looking for? Most corporates I have spoken to say they do not want banks to get more involved in their supply chains and that they understand their supply chains better than the banks.
So is all this 'hoopla' surrounding the corporate supply chain about what the banks want or is about solutions corporates are really looking for?
Wednesday, April 25, 2007
The MiFID debacle
I have managed to avoid writing anything about MiFID for the last few weeks, but I am forced to put pen to paper in light of recent speculation surrounding CESR's recommendations for best execution under MiFID, and an overwhelming perception that as far as regulation goes, MiFID has been a debacle from day one.
Bearing in mind that certain aspects of the regulation itself continue to suffer from a lack of regulatory clarity and detail, and the fear that some national regulators, particularly in those countries that will not transpose to MiFID on time, will lend a different interpretation to MiFID guidelines, it only serves to fuel my belief that the transition to MiFID will be anything but smooth.
With only three countries (including the UK) successfully transposing MiFID into national law by the 31 January deadline, how can regulators deem MiFID's implementation anything but a debacle of major proportions?
To add to their woes, SunGard and TradeTech have just released MiFID readiness survey findings which indicate that only 13% of financial services firms are confident that they are on track to meet new MiFID regulations. More than 60% of firms indicated that their preparations still required some work, which is hardly surprising.
Forty six percent of those surveyed by SunGard and TradeTech expressed concerns that their own national regulators would "add further complexity" to MiFID through the imposition of national laws and additional guidance.
Furthermore, whilst some clarity may have emerged surrounding best execution requirements under MiFID, rumour has is that the Committee of European Securities Regulators' (CESR) final recommendations on supervisory treatment of best execution under MiFID, are not in accordance with those of the UK's Financial Services Authority (FSA).
Apparently the UK is perceived to be way ahead of other European countries based on the government's acceptance of Paul Myners' recommendations for institutional investment decision making, and the belief is that it will take the rest of Europe a long time to catch up.
Furthermore, the mind can only boggle at the plethora of pre-trade reporting initiatives that may emerge post-MiFID and the implications for firms looking to consolidate all this data.
Marcus Hooper, who is the author of various white papers on MiFID published by Equiduct, says "few comprehensive solutions have appeared" with respect to the issue of managing increased fragmentation of pre-trade information under MiFID.
Hooper anticipates that firm’s sources of pre-trade information will "change significantly" under MiFID to encompass the existence of multiple systematic internalisers, who he says are not obligated to use identical
information distribution systems, increased multilateral trading facilities and firms with more than one secondary market listing.
The resulting connectivity diagram looks anything but streamlined and simplistic and Hooper says firms have one of two options; they can either find a way to
consolidate pre-trade information, or restrict information to a smaller number of "information delivery mechanisms", which may not be so desirable when it comes to demonstrating "superior execution".
Hooper's latest White Paper entitled: "Pre-trade information and the advantages of consolidated data" can be downloaded from Equiduct's web site.
Bearing in mind that certain aspects of the regulation itself continue to suffer from a lack of regulatory clarity and detail, and the fear that some national regulators, particularly in those countries that will not transpose to MiFID on time, will lend a different interpretation to MiFID guidelines, it only serves to fuel my belief that the transition to MiFID will be anything but smooth.
With only three countries (including the UK) successfully transposing MiFID into national law by the 31 January deadline, how can regulators deem MiFID's implementation anything but a debacle of major proportions?
To add to their woes, SunGard and TradeTech have just released MiFID readiness survey findings which indicate that only 13% of financial services firms are confident that they are on track to meet new MiFID regulations. More than 60% of firms indicated that their preparations still required some work, which is hardly surprising.
Forty six percent of those surveyed by SunGard and TradeTech expressed concerns that their own national regulators would "add further complexity" to MiFID through the imposition of national laws and additional guidance.
Furthermore, whilst some clarity may have emerged surrounding best execution requirements under MiFID, rumour has is that the Committee of European Securities Regulators' (CESR) final recommendations on supervisory treatment of best execution under MiFID, are not in accordance with those of the UK's Financial Services Authority (FSA).
Apparently the UK is perceived to be way ahead of other European countries based on the government's acceptance of Paul Myners' recommendations for institutional investment decision making, and the belief is that it will take the rest of Europe a long time to catch up.
Furthermore, the mind can only boggle at the plethora of pre-trade reporting initiatives that may emerge post-MiFID and the implications for firms looking to consolidate all this data.
Marcus Hooper, who is the author of various white papers on MiFID published by Equiduct, says "few comprehensive solutions have appeared" with respect to the issue of managing increased fragmentation of pre-trade information under MiFID.
Hooper anticipates that firm’s sources of pre-trade information will "change significantly" under MiFID to encompass the existence of multiple systematic internalisers, who he says are not obligated to use identical
information distribution systems, increased multilateral trading facilities and firms with more than one secondary market listing.
The resulting connectivity diagram looks anything but streamlined and simplistic and Hooper says firms have one of two options; they can either find a way to
consolidate pre-trade information, or restrict information to a smaller number of "information delivery mechanisms", which may not be so desirable when it comes to demonstrating "superior execution".
Hooper's latest White Paper entitled: "Pre-trade information and the advantages of consolidated data" can be downloaded from Equiduct's web site.
Still confused about BICs and IBANs?
Following on from my comments last week about the mishandling and confusion surrounding correct usage of BICs and IBANs for eurozone payments, Eiger Systems, which provides a data validation solution for bank account identifiers and international bank account numbers, has added further fuel to the debate by saying that it is not enough to just have the correct IBAN (International Bank Account Number) on cross-border euro credit transfers.
From 1 January this year, the inclusion of BICs and IBANs became compulsory for cross-border credit transfers in the eurozone as well as countries such as Iceland, Liechtenstein, Norway and Switzerland. BICs and IBANs were introduced as a means of increasing the straight-through processing of cross-border payments in euro, thereby reducing the costs associated with manual repair and handling of payments.
Yet, whilst BIC and IBAN information is included on most bank account statements, and has been for some time, there still appears to be a general lack of understanding on both corporates' and banks' part as to correct format and handling of this information.
In my previous post, I remarked on LogicaCMG's survey findings which indicate that banks expect payment processing costs to increase in the first year of SEPA's introduction as they anticipate that not all cross-border transfers will contain the correct account ID information, which means payments will be delayed or require manual repair.
And whilst there are software solutions that enable companies to check the correct formatting of IBANs, Jonathan Williams, principal market strategist, Eiger Systems maintains that the accuracy of the IBAN data also needs to be checked - an extra layer of verification that not all software solutions provide, Williams claims.
There is a world of difference between correctly formatting an IBAN and ensuring that the data underlying the IBAN is correct, or even exists,” says Williams. “Banks and corporates must make this link between format validation and data validation. Only if the data is validated at the same time that the format is validated can corporates hope to avoid repair or rejection charges and the payment delays that inevitably result."
In in its efforts to streamline, standardise and make cross-border euro credit transfers more cost-effective (or the same as domestic transfers), the industry appears to have only added an additional layer of complexity for customers.
Can the industry safely say that it has gone out of its way to adequately educate customers and banks about the correct use of BICs and IBANs? More importantly, are companies likely to face increased costs and inefficiencies pertaining to cross-border euro credit transfers post-SEPA because of incorrect account formatting?
From 1 January this year, the inclusion of BICs and IBANs became compulsory for cross-border credit transfers in the eurozone as well as countries such as Iceland, Liechtenstein, Norway and Switzerland. BICs and IBANs were introduced as a means of increasing the straight-through processing of cross-border payments in euro, thereby reducing the costs associated with manual repair and handling of payments.
Yet, whilst BIC and IBAN information is included on most bank account statements, and has been for some time, there still appears to be a general lack of understanding on both corporates' and banks' part as to correct format and handling of this information.
In my previous post, I remarked on LogicaCMG's survey findings which indicate that banks expect payment processing costs to increase in the first year of SEPA's introduction as they anticipate that not all cross-border transfers will contain the correct account ID information, which means payments will be delayed or require manual repair.
And whilst there are software solutions that enable companies to check the correct formatting of IBANs, Jonathan Williams, principal market strategist, Eiger Systems maintains that the accuracy of the IBAN data also needs to be checked - an extra layer of verification that not all software solutions provide, Williams claims.
There is a world of difference between correctly formatting an IBAN and ensuring that the data underlying the IBAN is correct, or even exists,” says Williams. “Banks and corporates must make this link between format validation and data validation. Only if the data is validated at the same time that the format is validated can corporates hope to avoid repair or rejection charges and the payment delays that inevitably result."
In in its efforts to streamline, standardise and make cross-border euro credit transfers more cost-effective (or the same as domestic transfers), the industry appears to have only added an additional layer of complexity for customers.
Can the industry safely say that it has gone out of its way to adequately educate customers and banks about the correct use of BICs and IBANs? More importantly, are companies likely to face increased costs and inefficiencies pertaining to cross-border euro credit transfers post-SEPA because of incorrect account formatting?
Thursday, April 19, 2007
Processing costs could rise under SEPA
Following on from the confusion amongst US companies about the use of BICs and IBANs when sending cross-border payments to the eurozone under the new SEPA framework, research commissioned by LogicaCMG, indicates that banks anticipate increased costs from incorrect addressing and routing of payments post-SEPA. And guess who is going to have to pay for that - undoubtedly the banks will pass on the costs to customers.
Based on a survey of more than 100 of the top 500 banks in the eurozone, as well as the UK and Sweden, Coleman Parks which conducted the research on behalf of LogicaCMG, found that 63% of banks anticipate increased costs from handling exceptions and 60% anticipate an increase in the number of payments returned to the originator.
The banks estimate that failed SEPA transactions and exceptions could cost them in the region of €1.3 billion (presuming an STP rate of 80%) in 2008, based on anticipated transaction volumes in the first year of SEPA's introduction.
Another 17% of banks surveyed expect difficulties in identifying the correct intermediary routing information for receiving banks, yet, according to the LogicaCMG study, only 60% of eurozone banks have plans in place to resolve the issue of IBAN and BIC transaction addressing and routing.
The whole issue of BICs and IBANs has been mishandled from day one, with banks not educating customers enough about the need to include correct account ID information in order to avoid repair costs and payments being held up. Furthermore, the concept of an International Bank Account Number is somewhat of a misnomer given that it is only recognised within Europe, and is not an internationally accepted account ID reference. In the US, for example, the IBAN contains too many characters to be accepted by local clearing systems.
LogicaCMG's findings indicate that the cost of cross-border payments is likely to increase in the months following SEPA's introduction as the number of failed transactions rises. This runs counter to what SEPA is all about in terms of reducing the cost of cross-border payments within the eurozone, and surely the industry only has itself to blame given that there is still widespread confusion amongst customers and banks about the correct use of BICs and IBANs.
Based on a survey of more than 100 of the top 500 banks in the eurozone, as well as the UK and Sweden, Coleman Parks which conducted the research on behalf of LogicaCMG, found that 63% of banks anticipate increased costs from handling exceptions and 60% anticipate an increase in the number of payments returned to the originator.
The banks estimate that failed SEPA transactions and exceptions could cost them in the region of €1.3 billion (presuming an STP rate of 80%) in 2008, based on anticipated transaction volumes in the first year of SEPA's introduction.
Another 17% of banks surveyed expect difficulties in identifying the correct intermediary routing information for receiving banks, yet, according to the LogicaCMG study, only 60% of eurozone banks have plans in place to resolve the issue of IBAN and BIC transaction addressing and routing.
The whole issue of BICs and IBANs has been mishandled from day one, with banks not educating customers enough about the need to include correct account ID information in order to avoid repair costs and payments being held up. Furthermore, the concept of an International Bank Account Number is somewhat of a misnomer given that it is only recognised within Europe, and is not an internationally accepted account ID reference. In the US, for example, the IBAN contains too many characters to be accepted by local clearing systems.
LogicaCMG's findings indicate that the cost of cross-border payments is likely to increase in the months following SEPA's introduction as the number of failed transactions rises. This runs counter to what SEPA is all about in terms of reducing the cost of cross-border payments within the eurozone, and surely the industry only has itself to blame given that there is still widespread confusion amongst customers and banks about the correct use of BICs and IBANs.
Wednesday, April 18, 2007
Giving up the phone
The stats indicating uptake of online trading of FX certainly look impressive. Despite a slow start back in the late 1990s when online trading portals first came online, recent estimates indicate that more than half of all corporates execute foreign exchange trades online, particularly those companies that are "cash rich" or have revenues in excess of $1 billion.
The online trading phenomenon has given rise to various online portals for trading FX and money market instruments; traditional multibank providers like FXall and Currenex have now been complemented by specialist providers such as Hotspot FX, which targeted hedge funds with its anonymous ECN model, 360T which covers a wider range of asset classes including money markets and derivatives, and Reuters and the Chicago Mercantile Exchange's recently launched FXMarketSpace, which provides an exchange central counterparty clearing model for FX trading.
Not a day goes by without some new platform or additional functionality for trading FX-related instruments online emerging. Bearing that in mind I was surprised to find the general lack of adoption of web-based trading tools by US corporates attending EuroFinance's international cash management conference in Miami.
While all other indicators appeared to suggest that corporates favoured the price discovery and aggregated liquidity provided by trading FX on multibank web portals such as FXall and 360T, US corporates appeared to be less progressive than their European counterparts when it came to giving up the old-fashioned telephone.
Some US corporates were not convinced of the business benefits of moving their FX business online when compared to the more 'personal touch' of speaking to a trader on the telephone and leveraging the long standing credit relationships corporates enjoyed with a particular bank.
However, Christoph Perger, managing partner, of Frankfurt-headquartered 360T, was at pains to explain to US companies that online trading did not mean they had to give up the phone or entrenched banking relationships altogether.
"Automation is not drying out relationships.It is more of a hybrid approach [telephone and online trading]."
In addition to obvious benefits such as price transparency and the ability to access liquidity from multiple providers, as well as in the case of 360T's online platform, the ability to access multi-bank liquidity across multiple asset classes (FX, money markets, interest rate swaps, derivatives ) via a single web interface, Perger pointed out that online trading could also help companies with their Sarbanes-Oxley compliance by providing an electronic audit trail of FX deals and confirmations.
It appears that European corporates may be slightly ahead of their US counterparts, when it comes to realising the benefits of web-based trading tools for FX and other instruments, which I found slightly satisfying given that on the flight over to Miami I was bombarded by comments from an American tourist that had recently visited the UK about the differences in plumbing between the two countries.
I asked him what he thought of London, and instead of commenting on the virtues or otherwise of the usual tourist hot spots, he proceeded to tell me that he could not understand why there were two different taps for hot and cold water in the UK, whilst in the US one tap dispensed both at the same time which made it easier to wash your hands in warm water.
While European plumbing may be slightly archaic to some, it appears Europe has the upper hand when it comes to appreciating the finer points of web-based or electronic trading platforms.
The online trading phenomenon has given rise to various online portals for trading FX and money market instruments; traditional multibank providers like FXall and Currenex have now been complemented by specialist providers such as Hotspot FX, which targeted hedge funds with its anonymous ECN model, 360T which covers a wider range of asset classes including money markets and derivatives, and Reuters and the Chicago Mercantile Exchange's recently launched FXMarketSpace, which provides an exchange central counterparty clearing model for FX trading.
Not a day goes by without some new platform or additional functionality for trading FX-related instruments online emerging. Bearing that in mind I was surprised to find the general lack of adoption of web-based trading tools by US corporates attending EuroFinance's international cash management conference in Miami.
While all other indicators appeared to suggest that corporates favoured the price discovery and aggregated liquidity provided by trading FX on multibank web portals such as FXall and 360T, US corporates appeared to be less progressive than their European counterparts when it came to giving up the old-fashioned telephone.
Some US corporates were not convinced of the business benefits of moving their FX business online when compared to the more 'personal touch' of speaking to a trader on the telephone and leveraging the long standing credit relationships corporates enjoyed with a particular bank.
However, Christoph Perger, managing partner, of Frankfurt-headquartered 360T, was at pains to explain to US companies that online trading did not mean they had to give up the phone or entrenched banking relationships altogether.
"Automation is not drying out relationships.It is more of a hybrid approach [telephone and online trading]."
In addition to obvious benefits such as price transparency and the ability to access liquidity from multiple providers, as well as in the case of 360T's online platform, the ability to access multi-bank liquidity across multiple asset classes (FX, money markets, interest rate swaps, derivatives ) via a single web interface, Perger pointed out that online trading could also help companies with their Sarbanes-Oxley compliance by providing an electronic audit trail of FX deals and confirmations.
It appears that European corporates may be slightly ahead of their US counterparts, when it comes to realising the benefits of web-based trading tools for FX and other instruments, which I found slightly satisfying given that on the flight over to Miami I was bombarded by comments from an American tourist that had recently visited the UK about the differences in plumbing between the two countries.
I asked him what he thought of London, and instead of commenting on the virtues or otherwise of the usual tourist hot spots, he proceeded to tell me that he could not understand why there were two different taps for hot and cold water in the UK, whilst in the US one tap dispensed both at the same time which made it easier to wash your hands in warm water.
While European plumbing may be slightly archaic to some, it appears Europe has the upper hand when it comes to appreciating the finer points of web-based or electronic trading platforms.
In the dark about SEPA
As the International Payments Conference in London heard from Jean-Michel Godeffroy, director-general, payment systems, European Central Bank, that banks needed to ensure their systems were SEPA (Single Euro Payment Area) compliant in time for the launch date of 1 January, 2008, on the other side of the Atlantic, US multinationals attending EuroFinance's cash management conference in Miami were somewhat confused as to what SEPA meant for them.
It appears that the banks have not done a very good job of explaining to US headquartered multinationals what SEPA means for them in terms of payments they make within the euro zone and the real opportunities it presents to rationalise the number of accounts they hold with banks in Europe, dependent on the liquidity and tax implications.
A common refrain at the EuroFinance conference in Miami was that SEPA will create one of the "most innovative economies" in the world. But it seems no one, has really bothered to tell corporates outside of Europe what this "innovative economy" really means for them when transacting or doing business within the eurozone.
Treasury consultants at the Miami conference were eager to impart to corporates that SEPA would eventually mean they could clear all eurozone payments through a single operating account, as well as encouraging the use of centralised payment factories and collection points. Yet, survey findings indicated that SEPA was a relatively low priority for US multinationals.
While European corporates have been vociferous about the lack of communication from their banks as to the business benefits of SEPA, it appears US corporates are even more in the dark.
The general lack of education on the banks' part around SEPA only serves to fuel cynical comments that perhaps it is intentional, given that SEPA will dramatically reduce banks' revenue streams, perhaps ignorance on the part of customers is bliss, some suggest.
This is particularly pertinent in the case of US-based companies sending payments to eurozone countries in formats that are not SEPA-compliant - for example euro credit transfers may not contain the correct BIC (Bank Identifier Code) or International Bank Account Number (IBAN) for straight-through processing (STP) of that payment.
As Stephen Wojciechowicz, regional solutions manager, North America, banking industry division, SWIFT, pointed out, non-compliant SEPA payments could either be rejected, held or there could be additional charges if they are non-STP.
There also appeared to be some confusion amongst US corporates about what payment transfers would be impacted by SEPA. Wojciechowicz pointed out that whilst SEPA in theory only applied to euro payments of up to EUR 50,000, that it made more sense for US corporates to ensure all euro payments were SEPA compliant. (The European Payments Council's rule books for SEPA Credit Transfers and SEPA Direct Debits do not impose a cap and the belief is that the EUR 50,000 cap will be relaxed).
Wojciechowicz said that US companies should also apply SEPA formatting for euro payments to non-euro countries which still maintained their local currency, but had signed up to the principles of SEPA as members of the EU or European Economic Area.
Some US corporates in the audience appeared bemused as to how SEPA could proceed from 1 January 2008 without the SEPA framework for direct debits in place. SEPA Direct Debits were delayed due to the EU's failure to pass the legal framework for SEPA, otherwise known as the Payment Services Directive, in time for their implementation by 1 January, 2008.
Good old BICs and IBANs, also appear to be creating confusion outside of Europe. Wojciechowicz said how one US bank had mistakenly removed the alpha numeric character within the IBAN which meant that additional repair charges were imposed on the corporate in question.
While banks may be gearing up for SEPA implementation, preparing their back end systems to offer SEPA compliant payment instruments from 1 January next year, there is no questions that more could be done to better educate end customers on both sides of the Atlantic as to what SEPA really means for them.
It appears that the banks have not done a very good job of explaining to US headquartered multinationals what SEPA means for them in terms of payments they make within the euro zone and the real opportunities it presents to rationalise the number of accounts they hold with banks in Europe, dependent on the liquidity and tax implications.
A common refrain at the EuroFinance conference in Miami was that SEPA will create one of the "most innovative economies" in the world. But it seems no one, has really bothered to tell corporates outside of Europe what this "innovative economy" really means for them when transacting or doing business within the eurozone.
Treasury consultants at the Miami conference were eager to impart to corporates that SEPA would eventually mean they could clear all eurozone payments through a single operating account, as well as encouraging the use of centralised payment factories and collection points. Yet, survey findings indicated that SEPA was a relatively low priority for US multinationals.
While European corporates have been vociferous about the lack of communication from their banks as to the business benefits of SEPA, it appears US corporates are even more in the dark.
The general lack of education on the banks' part around SEPA only serves to fuel cynical comments that perhaps it is intentional, given that SEPA will dramatically reduce banks' revenue streams, perhaps ignorance on the part of customers is bliss, some suggest.
This is particularly pertinent in the case of US-based companies sending payments to eurozone countries in formats that are not SEPA-compliant - for example euro credit transfers may not contain the correct BIC (Bank Identifier Code) or International Bank Account Number (IBAN) for straight-through processing (STP) of that payment.
As Stephen Wojciechowicz, regional solutions manager, North America, banking industry division, SWIFT, pointed out, non-compliant SEPA payments could either be rejected, held or there could be additional charges if they are non-STP.
There also appeared to be some confusion amongst US corporates about what payment transfers would be impacted by SEPA. Wojciechowicz pointed out that whilst SEPA in theory only applied to euro payments of up to EUR 50,000, that it made more sense for US corporates to ensure all euro payments were SEPA compliant. (The European Payments Council's rule books for SEPA Credit Transfers and SEPA Direct Debits do not impose a cap and the belief is that the EUR 50,000 cap will be relaxed).
Wojciechowicz said that US companies should also apply SEPA formatting for euro payments to non-euro countries which still maintained their local currency, but had signed up to the principles of SEPA as members of the EU or European Economic Area.
Some US corporates in the audience appeared bemused as to how SEPA could proceed from 1 January 2008 without the SEPA framework for direct debits in place. SEPA Direct Debits were delayed due to the EU's failure to pass the legal framework for SEPA, otherwise known as the Payment Services Directive, in time for their implementation by 1 January, 2008.
Good old BICs and IBANs, also appear to be creating confusion outside of Europe. Wojciechowicz said how one US bank had mistakenly removed the alpha numeric character within the IBAN which meant that additional repair charges were imposed on the corporate in question.
While banks may be gearing up for SEPA implementation, preparing their back end systems to offer SEPA compliant payment instruments from 1 January next year, there is no questions that more could be done to better educate end customers on both sides of the Atlantic as to what SEPA really means for them.
Tuesday, April 17, 2007
US corporates unsure about SWIFT
At EuroFinance's International Treasury Management conference in Miami, Florida, one of the most advanced corporations, General Electric (GE), was eager to share its experience of how it had used SWIFTNet to rationalise the 'hotch potch' of electronic banking connections most corporations maintain with their banks.
Seth Marlowe, director, strategic initiatives, corporate treasury, operations services, GE, told conference goers it had already established 57 connections with banks via SWIFTNet and that it had another 75 to go. No other multinational corporation has invested as heavily in SWIFTNet as GE, however, Marlowe said it did so without conducting a strategic cost/benefit analysis.
Given the scale of its global operations, Marlowe said GE "had no choice but to go down this path [SWIFTNet]."However,it has not all been plain sailing. Marlowe says setting up multiple SWIFTNet Member Administered Closed User Groups (CUGs) is time consuming, but that the new SWIFT SCORE (Standardised Corporate Environment) Model made things easier in terms of the implementation process.
So are other North American corporates likely to follow GE's lead? Whilst IBM and Microsoft have announced their move to SWIFTNet, there were no show of hands by attendees at EuroFinance's conference in Miami when asked if GE's example had encouraged them to think about moving onto SWIFTNet. Over lunch one banker from Royal Bank of Scotland in the US said the cost of SWIFT was still too high for a number of companies.
It seems SWIFT still has its work cut out for it if it wants to penetrate the North American corporate market.
Seth Marlowe, director, strategic initiatives, corporate treasury, operations services, GE, told conference goers it had already established 57 connections with banks via SWIFTNet and that it had another 75 to go. No other multinational corporation has invested as heavily in SWIFTNet as GE, however, Marlowe said it did so without conducting a strategic cost/benefit analysis.
Given the scale of its global operations, Marlowe said GE "had no choice but to go down this path [SWIFTNet]."However,it has not all been plain sailing. Marlowe says setting up multiple SWIFTNet Member Administered Closed User Groups (CUGs) is time consuming, but that the new SWIFT SCORE (Standardised Corporate Environment) Model made things easier in terms of the implementation process.
So are other North American corporates likely to follow GE's lead? Whilst IBM and Microsoft have announced their move to SWIFTNet, there were no show of hands by attendees at EuroFinance's conference in Miami when asked if GE's example had encouraged them to think about moving onto SWIFTNet. Over lunch one banker from Royal Bank of Scotland in the US said the cost of SWIFT was still too high for a number of companies.
It seems SWIFT still has its work cut out for it if it wants to penetrate the North American corporate market.
Are we there yet?
Having jetted into Miami Florida to attend EuroFinance's international treasury management conference for North American multinationals, little did I know that an anecdote a passenger shared with me on the flight from London to Miami would have some resonance on the first day of the conference.
As the conference was on cash management trends amongst large US multinationals, one of the key focuses on day one was to what extent companies were looking to obtain a single view of their cash enterprise-wide on a global basis, or what Ron Chakravarti, liquidity and investments, global transaction services, Citi, termed "strategic treasury".
Unsurprisingly "strategic treasury" is not as easily obtainable as the 'perfect body' is perhaps for some Miami South Beach regulars. Both require significant investment in terms of time and money; with corporates having to standardise fragmented technology platforms and systems, integrate business processes, streamline banking account structures and affect cultural change at the corporate level.
Yet, unlike the 'perfect body', "strategic treasury" is not just reliant on what effort and investment companies make, but also how committed their banks are at doing the same, and it soon became apparent that the banks also have a lot of work to do. Chakravarti stressed the importance of real-time information in helping companies obtain a 'single view' of their cash, but there are still huge disparities between banks and the payments clearing infrastructure in general in terms of its ability to provide up-to-the-minute high quality transaction information to companies.
Companies also need to move away from what Chakravarti described as a "hotch potch" of electronic banking systems, which large US multinationals such as General Electric (GE) has done rationalising its more than 40 proprietary EDI connections with banks using SWIFTNet Member Administered Closed User Groups (MA-CUGS) and standardising communications with its banks using SWIFT standards such as FileAct for bulk payment transfers.
Yet, despite its unprecedented investment in SWIFT, Seth Marlowe, director, strategic initiatives, corporate treasury, operations services, General Electric said SWIFTNet was not a 'panacea'. More importantly, Marlowe said, its experience of setting up the 57 SWIFTNet connections it maintains with banks, was less than consistent.
"What we found is a mixed bag. There are some banks that have the technology available, and all it takes to establish a connection with them via SWIFT is three months. But some don't have the technology in place and it can take two years to negotiate how the bank should deploy the technology on SWIFT."
According to Marlowe, whilst companies are being asked to standardise their business processes, it is anything but standardised within the banks in terms of account validation which often differs within the same bank on a country-by-country basis.
"Probably the most standardised thing is that there are exceptions to standards and a lot of that has to do with the banks. They need to get rid of the exceptions and do things the [same] way even if the branch of a bank may operate differently."
Even in the case of BICs and IBANs, which are mandatory in Europe as a means of increasing straight-through processing of payments, Marlowe said whilst banks insisted on companies including the correct IBAN in transactions, when it came to balance reporting, as a different system was used within the bank, the banks used BBANs (Basic Bank Account Numbers), which meant companies had to support two account numbers, IBANS and BBANS.
In a roundabout way this brings me back to the anecdote I mentioned at the beginning that a fellow passenger shared with me on the plane to Miami, which demonstrates how business practices within subsidiaries of the same bank are anything but standardised.
The passenger was recently visiting London and wanted to know if they could use their credit card from their US bank in a Royal Bank of Scotland ATM machine in London without being charged as RBS owned the US bank they banked with. Needless to say whilst both banks belonged to the same parent company, neither staff at the bank in the US or RBS in the UK seemed to know about the other or whether there had been any attempt at standardising processes between the two banks when it came to credit cards.
So when it comes to "strategic treasury" it appears that the banks as well as corporates need to get their own house in order.
Thursday, April 12, 2007
'Tapping' into new sources of data
With Ger Rosenkamp having steered the helm of Asset Control, transforming the privately-held company into a leading provider of centralized data management solutions for time series and reference data, what can customers expect from new CEO Phil Lynch?
Rosenkamp announced he was stepping down as CEO and president following his sale of a majority stake in his company to Fidelity Ventures and the appointment of Lynch, ex-CEO Reuters Americas and a Fidelity venture partner, as the new president and CEO of Asset Control.
Lynch says his initial focus will be on integrating the TAP Solutions acquisition with Asset Control, which will see its TAPMaster solution for data accessibility act as a downstream "data mart" to Asset Control's AC Plus data solution framework.
He says that the TAP acquisition will give Asset Control broader operating systems support beyond Unix and Linux as the Vancouver-based company's data accessibility solution leverages Microsoft.Net technology, which is likely to appeal to smaller-to-medium sized firms seeking a "simpler" solution.
Lynch also wants to build what he termed, an "ecosystem" around key product lines within Asset Control and to partner with data providers to build "out-of-the-box" standardised market data feeds from leading providers such as Thomson Data Corporation, S&P, Reuters and Bloomberg, which can be implemented more quickly.
I asked Lynch whether he would maintain Asset Control's focus on its 'hybrid' data management approach combining in-house software with outsourcing of services. His response seemed to indicate that at this stage, outsourced data management is not a top priority.
"Companies have been slow to take up outsourcing. I don't think the market as a whole is ready yet. Distribution of data is highly dispersed and not easy to 'ring-fence', which makes it difficult to outsource."
Having said that, Lynch said Asset Control would continue its partnership with Accenture's Managed Reference Data Service, which leverages AC Plus. "We also want to look at business process outsourcing opportunities as well, but that is more a long-term investment."
One question I was dying to ask, was Asset Control's participation (or lack of) in the Enterprise Data Management Council, a grouping of data management vendors including GoldenSource, Cicada and SunGard, which aims to help firms move to a more horizontal enterprise-wide data management framework.
Asset Control has always touted its centralised data management approach and Lynch appears less than enamoured by the EDM Council. "We are not planning to participate [in the Council]," he said. "We have to understand the benefits of it and how it is going to help 'move the needle'. I am not convinced of that yet. But I am open minded." Outgoing CEO Ger Rosenkamp chipped in saying that while EDM has value, he believes Asset Control's Customer Advisory Board, which influences most of its product development strategy, goes beyond the level achieved by the EDM Council.
An 'incremental' approach to compliance
The spate of regulations banks have to comply with reads like a shopping list; MiFID, Reg NMS, Know Your Customer, anti-money laundering, Basel II, fraud detection .....
And historically most banks have opted to buy separate solutions to address each regulation. Yet, given the zealousness with which the regulatory treadmill is churning out new or revised pieces of legislation, implementing separate solutions is no longer considered a viable approach. "When you deploy multiple compliance solutions, costs go up," says Stephen Epstein, vice president, head, product management, risk and compliance software provider, Mantas.
Epstein compares the scale of upfront investment required by most banks today to comply with a raft of regulations to the early days of order management system deployment. However, the difference with regulatory compliance, he says, is that the cost is not just a one-off investment; it is ongoing as new pieces of regulation come online, banks must source new data, documentation etc.
"The cost of supporting regulatory examinations is the real 'killer,' Epstein continues. "Banks need to have documentation readily available, the right policies and procedures in place and be able to say why an alert has been generated."
The only ones that appear to be benefiting from the overwhelming tide of regulation, corporate governance and compliance is the regulators, consultants and vendors implementing these myriad solutions. Yet, recognising that there is often overlap between different regulations in terms of the functionality and business processes required: transaction monitoring, scenario analysis, client classification, regulatory reporting; the latest industry buzzword to emerge is GRC (Governance, Risk and Compliance) framework.
According to Mantas, GRC is about implementing a flexible framework which does not just address regulatory, governance and compliance needs 'now', but 'future proofs' the business against future changes to regulation, governance or compliance, as well as allowing firms to re-use components from previous GRC implementations to address future needs.
"GRC is about repackaging old wine into new bottles; leverage-ability and re-usability is the value proposition," says S. Ramakrishnan, CEO, Mantas and Reveleus.
Forrester Research predicts that the GRC software platform market will grow from $590 million today to $1.3 billion by 2011.
By focusing on areas that overlap between regulations and integrating components that address these areas, Mantas and Reveleus have combined elements (transaction monitoring, behaviour detection, risk, control and self-assessment) from their once separate solutions to provide a GRC framework, a single platform which aims to reduce the duplication of effort and cost associated with implementing separate risk, governance and compliance solutions.
An example of the Reveleus/Mantas GRC platform at work is in the area of regulatory compliance with MiFID, where functionality; business execution analytics, scenario analytics, client classification, regulatory reporting; from both vendors' solutions are combined to help firms address various requirements such as best execution and KYC under MiFID.
But while GRC software platforms may be in the midst of a 'hype cycle', is it destined to fall into the 'trough of disillusionment' based on challenges around implementation and integrating data across traditional product silos within banks?
Ramakrishnan of Mantas/Reveleus says they are not trying to sell a 'monstrous' strategy to banks. The idea he says is to implement a GRC framework in incremental steps, starting with a specific regulation such as MiFID, for example, and then re-using data and analytic components of that installation to help with compliance, governance and risk management in other areas such as KYC, AML or fraud.
And historically most banks have opted to buy separate solutions to address each regulation. Yet, given the zealousness with which the regulatory treadmill is churning out new or revised pieces of legislation, implementing separate solutions is no longer considered a viable approach. "When you deploy multiple compliance solutions, costs go up," says Stephen Epstein, vice president, head, product management, risk and compliance software provider, Mantas.
Epstein compares the scale of upfront investment required by most banks today to comply with a raft of regulations to the early days of order management system deployment. However, the difference with regulatory compliance, he says, is that the cost is not just a one-off investment; it is ongoing as new pieces of regulation come online, banks must source new data, documentation etc.
"The cost of supporting regulatory examinations is the real 'killer,' Epstein continues. "Banks need to have documentation readily available, the right policies and procedures in place and be able to say why an alert has been generated."
The only ones that appear to be benefiting from the overwhelming tide of regulation, corporate governance and compliance is the regulators, consultants and vendors implementing these myriad solutions. Yet, recognising that there is often overlap between different regulations in terms of the functionality and business processes required: transaction monitoring, scenario analysis, client classification, regulatory reporting; the latest industry buzzword to emerge is GRC (Governance, Risk and Compliance) framework.
According to Mantas, GRC is about implementing a flexible framework which does not just address regulatory, governance and compliance needs 'now', but 'future proofs' the business against future changes to regulation, governance or compliance, as well as allowing firms to re-use components from previous GRC implementations to address future needs.
"GRC is about repackaging old wine into new bottles; leverage-ability and re-usability is the value proposition," says S. Ramakrishnan, CEO, Mantas and Reveleus.
Forrester Research predicts that the GRC software platform market will grow from $590 million today to $1.3 billion by 2011.
By focusing on areas that overlap between regulations and integrating components that address these areas, Mantas and Reveleus have combined elements (transaction monitoring, behaviour detection, risk, control and self-assessment) from their once separate solutions to provide a GRC framework, a single platform which aims to reduce the duplication of effort and cost associated with implementing separate risk, governance and compliance solutions.
An example of the Reveleus/Mantas GRC platform at work is in the area of regulatory compliance with MiFID, where functionality; business execution analytics, scenario analytics, client classification, regulatory reporting; from both vendors' solutions are combined to help firms address various requirements such as best execution and KYC under MiFID.
But while GRC software platforms may be in the midst of a 'hype cycle', is it destined to fall into the 'trough of disillusionment' based on challenges around implementation and integrating data across traditional product silos within banks?
Ramakrishnan of Mantas/Reveleus says they are not trying to sell a 'monstrous' strategy to banks. The idea he says is to implement a GRC framework in incremental steps, starting with a specific regulation such as MiFID, for example, and then re-using data and analytic components of that installation to help with compliance, governance and risk management in other areas such as KYC, AML or fraud.
Thursday, April 05, 2007
The threat of non-bank payment providers
One of the good things about the current spate of private equity interest in financial technology vendors is that it allows analysts and journalists, to indulge in some healthy speculation.
And that is just what Gareth Lodge, a European banking & payments analyst at TowerGroup has been doing since the announcement of private equity firm, Kohlberg Kravis Roberts & Co's (KKR) announcement of its $28 billion bid for payments processor, First Data.
KKR is no stranger to the world of buyouts having already secured in the region of $104.5 billion such deals so far this year. The US-headquartered payments processor is a desirable catch given that its strategy to grow outside its core US business by making acquisitions in Europe, the Middle East and Asia, has helped boost the fortunes of First Data International.
Lodge estimates that First Data has made at least 15 deals or alliances in Europe alone in the last 10 years, including its recent purchase of Polcard in Poland for $330 million.
An injection of private equity capital is likely to aid First Data's bid to become a truly global payment processor, enabling it to finance further acquisitions in the Middle East, Asia and Europe. And despite First Data spinning off money transfer provider Western Union, Lodge believes KKR's investment may also see the payments processor make a bigger play for the international remittances market, which is currently dominated by money transfer agencies and a handful of banks.
It will also 'deepen the pockets' of First Data, which Lodge believes is in a much stronger position financially than European payment processors such as Voca and Equens, to play an enlarged role in Europe post-SEPA.
"Voca is still paying for its core processing renewal ... and even though they had a capital call recently, it hasn't got the kind of funds First Data has, which spent at least half a billion over the last 18 months alone in Europe," says Lodge.
But for us speculators out there, what is even more interesting is the prospect that other bidders for First Data could enter the fray. Lodge says First Data has a clause which gives the company 50 days to find a better offer, which may seem unlikely given that KKR's $29 billion offer, is, according to Lodge, one of the largest private equity buyouts ever.
Yet, Lodge and other analysts at TowerGroup have been wracking their brains thinking of other potential bidders for First Data and the list they have come up with makes the mind boggle. Banks like Citi and RBS which have been linked to the Barclays' bid for ABN Amro cannot be ruled out. However, interest from non-banks like Microsoft, Google and supermarket chains, Tesco and Wal-Mart are also plausible, says Lodge.
Acquiring a payments processor with credit card processing capabilities and a global footprint would be a major boon for these companies, says Lodge. And whilst Tesco has worked with banks like RBS to deliver financial services in the UK, rumour has it that they do not plan on working with RBS outside of the UK. "Either they [Tesco] are trying to find a partner to work with in those regions or Tesco are going to go it alone," Lodge postures. "It [Tesco] is big enough to get a banking license, which would radically change the model."
And that is just what Gareth Lodge, a European banking & payments analyst at TowerGroup has been doing since the announcement of private equity firm, Kohlberg Kravis Roberts & Co's (KKR) announcement of its $28 billion bid for payments processor, First Data.
KKR is no stranger to the world of buyouts having already secured in the region of $104.5 billion such deals so far this year. The US-headquartered payments processor is a desirable catch given that its strategy to grow outside its core US business by making acquisitions in Europe, the Middle East and Asia, has helped boost the fortunes of First Data International.
Lodge estimates that First Data has made at least 15 deals or alliances in Europe alone in the last 10 years, including its recent purchase of Polcard in Poland for $330 million.
An injection of private equity capital is likely to aid First Data's bid to become a truly global payment processor, enabling it to finance further acquisitions in the Middle East, Asia and Europe. And despite First Data spinning off money transfer provider Western Union, Lodge believes KKR's investment may also see the payments processor make a bigger play for the international remittances market, which is currently dominated by money transfer agencies and a handful of banks.
It will also 'deepen the pockets' of First Data, which Lodge believes is in a much stronger position financially than European payment processors such as Voca and Equens, to play an enlarged role in Europe post-SEPA.
"Voca is still paying for its core processing renewal ... and even though they had a capital call recently, it hasn't got the kind of funds First Data has, which spent at least half a billion over the last 18 months alone in Europe," says Lodge.
But for us speculators out there, what is even more interesting is the prospect that other bidders for First Data could enter the fray. Lodge says First Data has a clause which gives the company 50 days to find a better offer, which may seem unlikely given that KKR's $29 billion offer, is, according to Lodge, one of the largest private equity buyouts ever.
Yet, Lodge and other analysts at TowerGroup have been wracking their brains thinking of other potential bidders for First Data and the list they have come up with makes the mind boggle. Banks like Citi and RBS which have been linked to the Barclays' bid for ABN Amro cannot be ruled out. However, interest from non-banks like Microsoft, Google and supermarket chains, Tesco and Wal-Mart are also plausible, says Lodge.
Acquiring a payments processor with credit card processing capabilities and a global footprint would be a major boon for these companies, says Lodge. And whilst Tesco has worked with banks like RBS to deliver financial services in the UK, rumour has it that they do not plan on working with RBS outside of the UK. "Either they [Tesco] are trying to find a partner to work with in those regions or Tesco are going to go it alone," Lodge postures. "It [Tesco] is big enough to get a banking license, which would radically change the model."
Wednesday, March 28, 2007
When the sleeping dragon awakes
Western sell-side firms have been champing at the bit to obtain a slice of the action in the Chinese brokerage market. Swiss-based UBS bank was amongst the first through the door with its purchase of a 20% stake in Beijing Securities. As part of China's entry into WTO it committed itself to allowing foreign partners to take an almost 33% stake in a joint venture brokerage in China.
According to the China Daily, following the announcement on July 2002 that joint venture brokers were permitted, only five have been established, including an arrangement between Goldman Sachs and Beijing Gaohua Securities.
China's myriad retail brokerages have been plagued by irregularities and a lack of corporate governance. The Chinese government classifies brokers into three main types: innovation brokers, standard brokers and problem brokers. At the end of 2005, 14 firms were classified as 'innovation brokers' and about 20 problematic brokers have been closed down or taken over by other firms, according to the China Daily.
Tim Marsh (ex UBS investment bank), chairman, Hong Kong-based Serisys Solutions, which provides IT services to China's capital and banking markets, anticipates that from October 2007, more foreign brokerage firms will enter the Chinese market as from that date they will be permitted to gain management control of Chinese brokers. But it is not just foreign brokers that are eager to penetrate the challenging Chinese market.
Transaction processing vendors are also eager to sell their securities processing solutions to China's capital markets firms to help local firms process the anticipated rise in volumes from the emergence of wholesale brokerage in China and to assist China's 'innovation' or 'modern'(meaning well-run) brokers in their global expansion.
Based on his experience in rolling out back office processing systems for UBS, Marsh and his company Serisys is putting its money on Syn~, the securities transaction processing platform of Coexis, a more than 30-year-old IT provider which originally sold its legacy back office processing solution CMP to investment firms such as Merrill Lynch, Goldman Sachs and CSFB. CMP and its client base was later sold to transaction processing systems provider ADP Wilco, but Coexis has since launched its "next generation" transaction processing and settlement system, Syn~.
Over crispy duck pancakes and prawns with lemongrass at London's Imperial City Restaurant, the location for Coexis' announcement of its strategic partnership with Serisys in Asia Pac, Marsh was effusive about the workflow capabilities embedded within Syn~.
Ply anybody with good Chinese grub and they are likely to be effusive about anything, but Marsh says the business process and rules-based transaction processing engine within Syn~ is unrivalled in the marketplace in terms of its adaptability, scalability and flexibility, the ability to isolate data from the underlying application so it can be used by other applications, and ease of integration as it sits on top of existing applications.
While competing systems such as ADP's Gloss may take a year to implement in complex operational environments, according to Marsh, Syn~ can be implemented in six to nine months. Serisys will support Syn~ in China and Asia Pac as an in-house solution or on an ASP basis.
Both Coexis and Serisys are working on translating Syn~ to Chinese and hope to add all the necessary functionality for the Chinese market by the end of this year. Coexis and Serisys will initially target the solution at the 18 'modern' brokers identified by the Chinese authorities as well as smaller brokers, which it anticipates will opt for an ASP offering.
But what about the global brokerages looking to enter the Chinese market? Won't they want to support their own in house transaction processing systems which they already run on a global basis or competing vendor's systems such as ADP Wilco's Gloss?
Marsh maintains that competing vendors such as SunGard and ADP Wilco do not have "transportable" securities processing solutions that will readily adapt to the Chinese market. "I don't see how foreign brokers will be able to squeeze their systems into Chinese brokers," he says. "It doesn't make any sense."
Serisys believes its local market knowledge combined with Coexis' next generation platform will prove a winning combination and is aiming to capture a 33% market share of the Chinese transaction processing market. Syn~ will be hosted in a development centre within the Hong Kong Science and Technology Park, five miles from the Chinese border. Marsh says this will also enable capital markets firms to comply with Chinese regulations regarding maintaining of customer data.
Monday, March 26, 2007
Overzealous regulators
Aah! What a difference five years of hindsight and a loss in US market competitiveness as a result of overzealous regulation can make. Most of us have been following the recent backlash against Sarbanes-Oxley (SOX), particularly Section 404 of the act, which requires companies to certify and assess the effectiveness of its financial controls.
Whilst the SEC has not totally repealed the controversial act, in light of a marked decline in companies looking to list in the US, which a number attribute to the onerous task of having to comply with regulations such as SOX, it has announced amendments to the controversial SOX legislation.
Yet, the greatest moment of clarity regarding SOX has to be a recent comment made by House Financial Services Committee chairman Barney Frank at a Council for Institutional Investors' meeting in the US last week. According to an article in the Investment News, Frank, alluding to the over enthusiasm of accountants drafting the SOX act stated:
Perhaps other overzealous regulators should heed Frank's pertinent remarks.
Whilst the SEC has not totally repealed the controversial act, in light of a marked decline in companies looking to list in the US, which a number attribute to the onerous task of having to comply with regulations such as SOX, it has announced amendments to the controversial SOX legislation.
Yet, the greatest moment of clarity regarding SOX has to be a recent comment made by House Financial Services Committee chairman Barney Frank at a Council for Institutional Investors' meeting in the US last week. According to an article in the Investment News, Frank, alluding to the over enthusiasm of accountants drafting the SOX act stated:
"The accountants probably, in helping draft 404 regulations, overdid it a little bit, and we violated a very important principle: Never ask your barber if you need a haircut."
Perhaps other overzealous regulators should heed Frank's pertinent remarks.
Friday, March 23, 2007
Not up for sale
The rumour mill is rife with speculation concerning cross-border mergers between European banks. Publicity surrounding potential merger discussions between Barclays and ABN Amro has led some to speculate that it may force the hand of some of the big American banks (namely Bank of America) looking for potential acquisitions in Europe.
Interestingly, while Barclays may be in acquisitive mode, some analysts suggest that it is a potential acquisition target itself. At the start of the year rumours were rife that Bank of America was interested in Barclays. And now according to a Wall Street Journal report, there are certain factions within Citigroup putting pressure on chairman and CEO Charles Prince to put in a hostile bid for ABN Amro, despite Citigroup earlier stating that it was more interested in emerging markets acquisitions.
Others it seems are more concerned about denying rumours that they may be potential acquisition targets. On Thursday, Belgium's second largest bank, KBC Group issued a press statement saying that despite rumours regarding ING seeking a Benelux alliance, it was not up for sale, or its exact words, "it [KBC] attaches a lot of importance to [its] standalone position, and has a core shareholder group which backs this strategy."
Flying the flag of independence, KBC Group says it aims to be an independent, medium-sized, bancassurer for private persons and medium-sized enterprises, and is investing substantially in developing its UK investment banking and private clients business.
But in this era of renewed pressures for consolidation particularly from shareholders seeking higher returns and greater economies of scale, can any bank really afford to say they are not up for sale?
Interestingly, while Barclays may be in acquisitive mode, some analysts suggest that it is a potential acquisition target itself. At the start of the year rumours were rife that Bank of America was interested in Barclays. And now according to a Wall Street Journal report, there are certain factions within Citigroup putting pressure on chairman and CEO Charles Prince to put in a hostile bid for ABN Amro, despite Citigroup earlier stating that it was more interested in emerging markets acquisitions.
Others it seems are more concerned about denying rumours that they may be potential acquisition targets. On Thursday, Belgium's second largest bank, KBC Group issued a press statement saying that despite rumours regarding ING seeking a Benelux alliance, it was not up for sale, or its exact words, "it [KBC] attaches a lot of importance to [its] standalone position, and has a core shareholder group which backs this strategy."
Flying the flag of independence, KBC Group says it aims to be an independent, medium-sized, bancassurer for private persons and medium-sized enterprises, and is investing substantially in developing its UK investment banking and private clients business.
But in this era of renewed pressures for consolidation particularly from shareholders seeking higher returns and greater economies of scale, can any bank really afford to say they are not up for sale?
Core banking systems - A necessary evil?
Upgrading core banking systems is not something any banks does lightly. Migration to new systems can take years to bed down and 'Big Bang' migrations have more often than not resulted in disaster.
So if one of the major banking and payments technologies providers in the US, Metavante Corporation and one of Europe's leading core banking systems vendors, Temenos, starts telling US top-tier retail and commercial banks, that time is running out and that 20 to 30 year-old legacy systems need to be upgraded, do you sit up and take notice or bury your head in the sand for another 10 years?
So far most banks in developed markets have opted for the 'ignore it and it will go away' approach to core banking systems replacement. According to a 2006 study conducted by Aite Group, approximately 12% of U.S. banks and the top 500 credit unions have reached a critical point for core system replacement. "They are paying high maintenance costs, and they suffer from slow product launches and an inability to easily integrate third-party applications or access information for compliance to new regulations," Aite writes.
Yet, despite the need for new systems, only 4% of U.S. banks and top 500 credit unions were expected to deploy a new core banking system in 2006. Of these deployments, 90% were by small U.S. banks and credit unions. Hardly a resounding vote of confidence in core banking systems replacement, which means any vendor trying to penetrate the US market may run into a brick wall.
Despite these challenges, Temenos, a leading European and emerging markets provider of core banking software, with a relatively small footprint in the US market, has set its sights on growing its US market share. However, recognising the "barriers to entry" in the US, it opted not to go it alone. Instead it is partnering with US-based Metavante Corporation, which provides banking and payments technologies to more than 8600 financial services firms worldwide.
Metavante counts 91 of the top 100 US financial institutions as its customers and as part of its strategic alliance with Temenos, it will "co-develop" an "advanced US global banking platform," based on Temenos' TCB retail processing solution for large-scale retail and commercial banks. Michael D. Hayford, COO and CFO of Metavante said they were attracted to Temenos' technology because of its multilingual, multicurrency, 24 x 7 processing capabilities, components US banks were missing.
Metavante will be the exclusive US provider of the "new advanced TCB platform," and in those banks that already use Metavante's core banking software, it will be replaced with components from the TCB product. Temenos and Metavante will initially target the top 50 US financial service providers with their new US global banking platform, which can be licensed or outsourced via a service bureau.
But what makes Temenos and Metavante think that their offering will be enough to convince US banks to upgrade 20 to 30-year-old legacy systems? By combining Temenos' advanced technology with Metavante's US banking knowledge, existing customer base and outsourcing experience, both companies believe it is a recipe for success.
Metavante and Temenos' approach in the US market is to encourage banks to replace core banking systems, component-by-component rather than a more riskier 'Big Bang' approach. And its outsourcing offering will certainly reduce the upfront investment for some banks.
Metavante maintains US banks no longer have any choice but to upgrade. "Large US banks have invested in nice front ends and bolted on interfaces to hide this back office functionality which is still running the way it has for a long time," says James Dempster, CTO, Metavante.
A number of US banks probably subscribe to the belief, 'If it ain't broke don't fix it.' Yet Dempster maintains that the "new cheque paradigm" in the US, and the move towards more electronic forms of payment, as well as the competitive threat posed by other banks and non-bank providers (for example, Wal-Mart), means US banks will be forced to move to a "continuous processing model" in order to compete and provide more competitive products.
Other global banking solution providers such as SAP/Accenture, Infosys/Finnacle and Oracle/i-flex are also looking to penetrate the US market. And whilst Metavante and Temenos believe their US market knowledge gives them a critical advantage over these providers, one cannot ignore the the 'stack' approach of competitors such as Oracle which is stitching different applications together including CRM, ERP and core banking software as part of its Fusion middleware strategy.
Mere mention of Oracle, however, is always guaranteed to arouse a passionate response. Alex Groenendyk, president, Americas, Temenos, maintains that Oracle is not a favoured supplier to the financial services industry and that Metavante's knowledge of the US banking market is unrivalled.
Dempster of Metavante expanded the point further saying, "Large US banks do not want an enterprise model. They want modular components that will interoperate with their existing architecture." Dempster believes that Oracle and SAP will suffer from their "tight connection" to Fusion and NetWeaver.
Andreades of Temenos is more passionate in his response to the competitive threat posed by Oracle/i-flex. "If you give your database model and applications to a single vendor (namely Oracle), you have given your business to that vendor to run. We don't believe the stack is the way to go."
So if one of the major banking and payments technologies providers in the US, Metavante Corporation and one of Europe's leading core banking systems vendors, Temenos, starts telling US top-tier retail and commercial banks, that time is running out and that 20 to 30 year-old legacy systems need to be upgraded, do you sit up and take notice or bury your head in the sand for another 10 years?
So far most banks in developed markets have opted for the 'ignore it and it will go away' approach to core banking systems replacement. According to a 2006 study conducted by Aite Group, approximately 12% of U.S. banks and the top 500 credit unions have reached a critical point for core system replacement. "They are paying high maintenance costs, and they suffer from slow product launches and an inability to easily integrate third-party applications or access information for compliance to new regulations," Aite writes.
Yet, despite the need for new systems, only 4% of U.S. banks and top 500 credit unions were expected to deploy a new core banking system in 2006. Of these deployments, 90% were by small U.S. banks and credit unions. Hardly a resounding vote of confidence in core banking systems replacement, which means any vendor trying to penetrate the US market may run into a brick wall.
Despite these challenges, Temenos, a leading European and emerging markets provider of core banking software, with a relatively small footprint in the US market, has set its sights on growing its US market share. However, recognising the "barriers to entry" in the US, it opted not to go it alone. Instead it is partnering with US-based Metavante Corporation, which provides banking and payments technologies to more than 8600 financial services firms worldwide.
Metavante counts 91 of the top 100 US financial institutions as its customers and as part of its strategic alliance with Temenos, it will "co-develop" an "advanced US global banking platform," based on Temenos' TCB retail processing solution for large-scale retail and commercial banks. Michael D. Hayford, COO and CFO of Metavante said they were attracted to Temenos' technology because of its multilingual, multicurrency, 24 x 7 processing capabilities, components US banks were missing.
Metavante will be the exclusive US provider of the "new advanced TCB platform," and in those banks that already use Metavante's core banking software, it will be replaced with components from the TCB product. Temenos and Metavante will initially target the top 50 US financial service providers with their new US global banking platform, which can be licensed or outsourced via a service bureau.
But what makes Temenos and Metavante think that their offering will be enough to convince US banks to upgrade 20 to 30-year-old legacy systems? By combining Temenos' advanced technology with Metavante's US banking knowledge, existing customer base and outsourcing experience, both companies believe it is a recipe for success.
Metavante and Temenos' approach in the US market is to encourage banks to replace core banking systems, component-by-component rather than a more riskier 'Big Bang' approach. And its outsourcing offering will certainly reduce the upfront investment for some banks.
Metavante maintains US banks no longer have any choice but to upgrade. "Large US banks have invested in nice front ends and bolted on interfaces to hide this back office functionality which is still running the way it has for a long time," says James Dempster, CTO, Metavante.
A number of US banks probably subscribe to the belief, 'If it ain't broke don't fix it.' Yet Dempster maintains that the "new cheque paradigm" in the US, and the move towards more electronic forms of payment, as well as the competitive threat posed by other banks and non-bank providers (for example, Wal-Mart), means US banks will be forced to move to a "continuous processing model" in order to compete and provide more competitive products.
Other global banking solution providers such as SAP/Accenture, Infosys/Finnacle and Oracle/i-flex are also looking to penetrate the US market. And whilst Metavante and Temenos believe their US market knowledge gives them a critical advantage over these providers, one cannot ignore the the 'stack' approach of competitors such as Oracle which is stitching different applications together including CRM, ERP and core banking software as part of its Fusion middleware strategy.
Mere mention of Oracle, however, is always guaranteed to arouse a passionate response. Alex Groenendyk, president, Americas, Temenos, maintains that Oracle is not a favoured supplier to the financial services industry and that Metavante's knowledge of the US banking market is unrivalled.
Dempster of Metavante expanded the point further saying, "Large US banks do not want an enterprise model. They want modular components that will interoperate with their existing architecture." Dempster believes that Oracle and SAP will suffer from their "tight connection" to Fusion and NetWeaver.
Andreades of Temenos is more passionate in his response to the competitive threat posed by Oracle/i-flex. "If you give your database model and applications to a single vendor (namely Oracle), you have given your business to that vendor to run. We don't believe the stack is the way to go."
Tuesday, March 20, 2007
I Can't Get No Satisfaction
Now that the outsourcing trend has well and truly passed the 'hype cycle' and plunged into the proverbial 'trough of disillusionment', global outsourcing advisory firm TPI has shed some light on why firms are becoming increasingly dissatisfied with outsourcing.
For those non-believers that strongly contest firms' dissatisfaction with outsourcing, TPI says it witnessed "a record number of re-negotiations" of outsourcing contracts in 2006, representing almost a quarter of all commercial contract awards made during 2006. "And this trend shows no sign of abating," according to TPI partner Stuart Harris.
TPI's summer 2006 survey of 40 international firms on their experiences of restructuring or renegotiating outsourcing contracts, found that 28% of respondents achieved less value than originally anticipated from outsourcing, with some companies restructuring their agreements within 18 months of having signed them.
But while it may be easy to point the finger at outsourcing providers as the source of dissatisfaction, TPI's research found that 61% of firms conceded that they had placed more emphasis on setting up the outsourcing contract rather than on managing it, and another 52% of respondents blamed their own "unrealistic expectations" as a key barrier to success.
Almost half of the companies surveyed by TPI blamed their "inexperience" in managing outsourcing and 46% said they had failed to fully implement a proper governance structure, with 35% failing to convene regular meetings of governance boards. It harks back to the age old adage, 'You may outsource the problem, but you still need to manage it.'
Yet, while firms have been remiss in terms of their expectations and ability to manage the outsourcing process, outsourcing providers are not entirely blameless. Historically, they have tended to emphasise the 'pros' as opposed to the 'cons' of outsourcing, by highlighting aspects such as cost savings in the region of 50%, without underlining the 'hidden costs' often involved in outsourcing.
Yet, whilst dissatisfaction with outsourcing contracts may be at an all time high, few firms surveyed by TPI had actually severed their relationships. Of the 42% that considered soliciting bids from other outsourcing providers during renegotiation, only 18% actually did so. Similarly, 41% said they considered bringing some of their outsourced work back in-house, but only 13% did.
Yet, as any bank or asset manager will know, moving to a new outsourcing service provider is not as easy as it sounds. "TPI has found that the friction typically involved in making the switch can be quite considerable,” says Harris. And as providers of outsourcing services are aware of buyers' 'weaknesses' when it comes to managing outsourcing contracts, Harris says that perhaps explains why 29% of buyers surveyed said they found their bargaining position weakened at renegotiation, compared with when the deal was originally struck.
It would seem that some outsourcing providers have firms over a barrel as once they are in the relationship, depending on how deep it is and the services it encompasses, it may be difficult for some firms to get out out of a dissatisfying outsourcing contract. And while we occasionally hear of outsourcing deals gone sour, they are just the publicised ones, and are perhaps not a true reflection of the general level of dissatisfaction firms may feel about outsourcing.
For those non-believers that strongly contest firms' dissatisfaction with outsourcing, TPI says it witnessed "a record number of re-negotiations" of outsourcing contracts in 2006, representing almost a quarter of all commercial contract awards made during 2006. "And this trend shows no sign of abating," according to TPI partner Stuart Harris.
TPI's summer 2006 survey of 40 international firms on their experiences of restructuring or renegotiating outsourcing contracts, found that 28% of respondents achieved less value than originally anticipated from outsourcing, with some companies restructuring their agreements within 18 months of having signed them.
But while it may be easy to point the finger at outsourcing providers as the source of dissatisfaction, TPI's research found that 61% of firms conceded that they had placed more emphasis on setting up the outsourcing contract rather than on managing it, and another 52% of respondents blamed their own "unrealistic expectations" as a key barrier to success.
Almost half of the companies surveyed by TPI blamed their "inexperience" in managing outsourcing and 46% said they had failed to fully implement a proper governance structure, with 35% failing to convene regular meetings of governance boards. It harks back to the age old adage, 'You may outsource the problem, but you still need to manage it.'
Yet, while firms have been remiss in terms of their expectations and ability to manage the outsourcing process, outsourcing providers are not entirely blameless. Historically, they have tended to emphasise the 'pros' as opposed to the 'cons' of outsourcing, by highlighting aspects such as cost savings in the region of 50%, without underlining the 'hidden costs' often involved in outsourcing.
Yet, whilst dissatisfaction with outsourcing contracts may be at an all time high, few firms surveyed by TPI had actually severed their relationships. Of the 42% that considered soliciting bids from other outsourcing providers during renegotiation, only 18% actually did so. Similarly, 41% said they considered bringing some of their outsourced work back in-house, but only 13% did.
Yet, as any bank or asset manager will know, moving to a new outsourcing service provider is not as easy as it sounds. "TPI has found that the friction typically involved in making the switch can be quite considerable,” says Harris. And as providers of outsourcing services are aware of buyers' 'weaknesses' when it comes to managing outsourcing contracts, Harris says that perhaps explains why 29% of buyers surveyed said they found their bargaining position weakened at renegotiation, compared with when the deal was originally struck.
It would seem that some outsourcing providers have firms over a barrel as once they are in the relationship, depending on how deep it is and the services it encompasses, it may be difficult for some firms to get out out of a dissatisfying outsourcing contract. And while we occasionally hear of outsourcing deals gone sour, they are just the publicised ones, and are perhaps not a true reflection of the general level of dissatisfaction firms may feel about outsourcing.
Friday, March 16, 2007
The SQL debate continues
In response to my earlier post on the debate surrounding the use of SQL in complex event processing (CEP) applications, Mark Tsimelzon, CTO of CEP vendor Coral8, has written something himself on the subject entitled, CEP and SQL: The Top Five Myths.
Make your own minds up.
Make your own minds up.
Thursday, March 15, 2007
The SQL debate
Having opened a veritable 'can of worms' with my post dated the 2 March entitled, Event Processing gets 'complex', my curiosity regarding the debate surrounding the use of Structured Query Language (SQL) in some complex event processing (CEP) applications, was further aroused.
The debate that post generated can more or less be summed up as the pro-SQL vs non-SQL camp, with CEP vendors like StreamBase Systems putting its case for an SQL-based standard for querying real-time event streams and stored data, while other vendors such as Kaskad and Progress Apama stated that there was little support for a SQL-based standard for event stream processing (in terms of companies offering this approach).
That may well be the case, but if so many CEP vendors do not support SQL, it made me wonder why some were sticking to their guns and implementing SQL-based languages anyway? I was interested to read an article penned by John Morrell of complex processing software provider, Coral8, reproduced on the Complex Event Processing web site.
Coral8 has developed an SQL-based Continuous Computation Language. In the article Morrell writes, "This [SQL] provides a familiar programming environment, speeding the creation of event processing applications." He later adds that as SQL is a 'pervasive' language, it lowers the learning curve for developers of CEP applications.
So there you have it. The highly competitive CEP space is dominated by vendors pushing different approaches, and after all choice is a good thing. But is there a right or wrong approach, and can SQL in CEP applications be discounted altogether if it does do what its proponents say it does in terms of speeding up development?
The debate that post generated can more or less be summed up as the pro-SQL vs non-SQL camp, with CEP vendors like StreamBase Systems putting its case for an SQL-based standard for querying real-time event streams and stored data, while other vendors such as Kaskad and Progress Apama stated that there was little support for a SQL-based standard for event stream processing (in terms of companies offering this approach).
That may well be the case, but if so many CEP vendors do not support SQL, it made me wonder why some were sticking to their guns and implementing SQL-based languages anyway? I was interested to read an article penned by John Morrell of complex processing software provider, Coral8, reproduced on the Complex Event Processing web site.
Coral8 has developed an SQL-based Continuous Computation Language. In the article Morrell writes, "This [SQL] provides a familiar programming environment, speeding the creation of event processing applications." He later adds that as SQL is a 'pervasive' language, it lowers the learning curve for developers of CEP applications.
So there you have it. The highly competitive CEP space is dominated by vendors pushing different approaches, and after all choice is a good thing. But is there a right or wrong approach, and can SQL in CEP applications be discounted altogether if it does do what its proponents say it does in terms of speeding up development?
Friday, March 02, 2007
MiFID - Hit the ground running
Not a week goes by where there is not some news on MiFID. Today appears to be no exception. With eight months to go until the official launch date for MiFID, suddenly all the experts are crawling out of the woodwork..
One such expert is Marcus Hooper who has penned a white paper sponsored by Equiduct on firms' best execution requirements under MiFID. Apparently Hooper has trawled through reams of MiFID Level 1 and 2 documentation to try and make sense of 'best execution' requirements, one of the most controversial least understood aspects of the legislation. The white paper includes example scenarios to explain how best execution is expected to work in real-life trading situations.
The white paper is one of six Equiduct is sponsoring in the run-up to MiFID. According to Bob Fuller, CEO, Equiduct, it is time for firms to hit the ground running. "If organisations are to make a success of MiFID they have got to move beyond opinion and actually determine what to do now to make sure their businesses are ready when the new rules become law on November 1st 2007."
The white paper on best execution will be available free for download from Equiduct's web site from Monday, 5 March.
One such expert is Marcus Hooper who has penned a white paper sponsored by Equiduct on firms' best execution requirements under MiFID. Apparently Hooper has trawled through reams of MiFID Level 1 and 2 documentation to try and make sense of 'best execution' requirements, one of the most controversial least understood aspects of the legislation. The white paper includes example scenarios to explain how best execution is expected to work in real-life trading situations.
"The reality of today's situation is that many firms are still confused about the most fundamental aspects of best execution, despite the fact that they will all have to implement systems, design business processes and comply with the new rules from November," says Hooper.
The white paper is one of six Equiduct is sponsoring in the run-up to MiFID. According to Bob Fuller, CEO, Equiduct, it is time for firms to hit the ground running. "If organisations are to make a success of MiFID they have got to move beyond opinion and actually determine what to do now to make sure their businesses are ready when the new rules become law on November 1st 2007."
The white paper on best execution will be available free for download from Equiduct's web site from Monday, 5 March.
Event processing gets 'complex'
The latest IT bandwagon that vendors are jumping all over is complex event processing, which promises to help firms make rapid decisions on streaming data (tick prices, for example)that is "constantly changing".
It is lumped into the broad category of 'business intelligence,' which is seeing a lot of activity of late with Oracle announcing its $3.3 billion acquisition of business intelligence (BI) vendor Hyperion, which it will combine with its own BI software to provide customers with tools for collecting and analysing information about their business.
What is the big deal about BI and complex event processing? Every firm has reams of customer, logistical and transactional data stored in silos, but this data is meaningless unless firms can glean some form of intelligence from it and use that to enhance customer service levels or gain a competitive advantage.
Event processing (EP) has found a natural home in the capital markets, where according to Brad Bailey, a senior analyst at Aite Group, "[it] has made an impressive showing in the algorithmic and strategy trading areas, and EP solutions are now migrating to other areas of the capital markets, such as data monitoring, compliance, Transaction Cost Analysis (TCA), risk management, proprietary data derivations, market making, and others."
A number of vendors are now claiming that event processing software is a 'must-have' component of firms' preparations for MiFID particularly when it comes to intelligent order routing and demonstrating best execution
Yet, making sense of what vendors are really offering in the event processing (EP) space is fraught with difficulty as not all of the firms in this space are specialists, they have merely added on BI or EP tools to existing data management applications.
Phil Howard, research director at Bloor Group cautions that "misleading claims" are being made about performance in the CEP space. There are claims and counterclaims about the speed and performance of various EP applications. There also appear to be some deep-rooted philosophical differences between vendors, which is only adding to the confusion for firms contemplating event processing for the first time.
Streambase Systems, designed its own language (StreamSQL) which adds time and event-based windows to standard SQL (Structured Query Language)to support live time queries on event streams. SQL has been used for many years to access and manipulate database systems.
Barry Morris, chairman and CEO of Streambase, says there is no other candidate than SQL, which is more widely used and understood than some of the proprietary technologies and languages competitors are developing.
Critics of SQL say it is not up to the job of performing real-time queries on streaming data, yet Morris maintains that it hasn't encountered any problem it hasn't been able to solve using StreamSQL. "StreamSQL allows firms to access static data that is on disk or in-memory in the same way that they access real-time data," he says. He claims that an "old fashioned" 'rules-engine' type approach, which some of its competitors offer, does not know how to handle static data.
It is lumped into the broad category of 'business intelligence,' which is seeing a lot of activity of late with Oracle announcing its $3.3 billion acquisition of business intelligence (BI) vendor Hyperion, which it will combine with its own BI software to provide customers with tools for collecting and analysing information about their business.
What is the big deal about BI and complex event processing? Every firm has reams of customer, logistical and transactional data stored in silos, but this data is meaningless unless firms can glean some form of intelligence from it and use that to enhance customer service levels or gain a competitive advantage.
Event processing (EP) has found a natural home in the capital markets, where according to Brad Bailey, a senior analyst at Aite Group, "[it] has made an impressive showing in the algorithmic and strategy trading areas, and EP solutions are now migrating to other areas of the capital markets, such as data monitoring, compliance, Transaction Cost Analysis (TCA), risk management, proprietary data derivations, market making, and others."
A number of vendors are now claiming that event processing software is a 'must-have' component of firms' preparations for MiFID particularly when it comes to intelligent order routing and demonstrating best execution
Yet, making sense of what vendors are really offering in the event processing (EP) space is fraught with difficulty as not all of the firms in this space are specialists, they have merely added on BI or EP tools to existing data management applications.
Phil Howard, research director at Bloor Group cautions that "misleading claims" are being made about performance in the CEP space. There are claims and counterclaims about the speed and performance of various EP applications. There also appear to be some deep-rooted philosophical differences between vendors, which is only adding to the confusion for firms contemplating event processing for the first time.
Streambase Systems, designed its own language (StreamSQL) which adds time and event-based windows to standard SQL (Structured Query Language)to support live time queries on event streams. SQL has been used for many years to access and manipulate database systems.
Barry Morris, chairman and CEO of Streambase, says there is no other candidate than SQL, which is more widely used and understood than some of the proprietary technologies and languages competitors are developing.
Critics of SQL say it is not up to the job of performing real-time queries on streaming data, yet Morris maintains that it hasn't encountered any problem it hasn't been able to solve using StreamSQL. "StreamSQL allows firms to access static data that is on disk or in-memory in the same way that they access real-time data," he says. He claims that an "old fashioned" 'rules-engine' type approach, which some of its competitors offer, does not know how to handle static data.
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