Wall Street trading systems may seem high tech, but the back-end processes required to complete a trade are a lot murkier and a lot lower tech than you might think.
Many traders rely on service providers like State Street Corp. to do the accounting and settlement and financial transfers required to actually complete a sale. But they frequently notify those providers of a trade with a fax often with critical information missing. In the past, State Street had to delay more than half the settlements so a staffer could confirm, by phone or fax, information missing from the original notice, says John A. Fiore, State Street's executive vice president and CIO. That much manual intervention was hugely expensive in an operation that makes up as much as two-thirds of State Street's total revenue stream.
The company's Financial Transaction Management (FTM) system now automatically processes more than 80 percent of the requests that flow through it by identifying the source of the fax and automatically filling in missing information from a database of information on traders. Fewer than half of all trades go through FTM at this point, but the system will be complete in the first quarter of next year.
The system was custom-coded in Java, using Oracle Corp. databases running on Sun Microsystems Inc. servers. It was tied to underlying processing systems on the mainframe using IBM's MQSeries message-oriented middleware for communication among applications.
FTM helps put State Street in the forefront of two movements on Wall Street, according to Tim Lind, an investment management practice analyst at Needham, Mass.-based TowerGroup.
The first is a push to automate the settlement process to the point where trades can be finalized one day after they're made, also known as T+1. The second is a move to outsource automation to companies like State Street so brokers don't have to pay the cost of automation themselves.
Although State Street launched the system to improve its internal efficiency, Lind says FTM puts the bank in a prime position to fulfill the need for outsourcing and automated trade completion.
Of the trades that are now processed through FTM, less than 20 percent must be handled manually which takes more time and incurs costs as a result of the delay of the trade and the staff needed for intervention.
"Even in its early stages, it's showing tremendous business value, even though there are so far no metrics from the operations side of the house," Fiore says. "That it has come off as scheduled and we haven't had problems deploying it has been a tremendous plus for the IT organization."
Upfront preparation work is never wasted. Even though State Street designed the project to be used in either a centralized or distributed way by business units and prepared for either eventuality, Fiore says more upfront work with the specific business units would have made the rollout even more effective.