We’ve been covering a trend lately, at least it seems like a trend. New York seems to be losing more and more of its clout in terms of financial power. The NYT takes a fresh look (registration required) at this idea:

At a black-tie event this summer, some of the world’s most powerful bankers and business executives gathered for a toast: “We are the international finance and business capital of the world, the world’s greatest global financial center, without question,” the mayor told the assembled crowd.

But that was not Michael R. Bloomberg talking. The city was not New York — it was London.

Even as the Dow Jones industrial average reaches new highs and Wall Street companies report robust profits, by some measures New York’s long-held crown as the financial capital of the world may be slipping.

I would say it’s definitely slipping.

“There’s a genuine recognition that we need to make some changes,” said Laure Aubuchon, head of international business development for the New York City Economic Development Corporation. Winning financial business is “so important to New York City,” she said. The financial services industry makes up 9 percent of the city’s work force and provides 31 percent of the tax base, she said.

That’s great that there’s a recognition, a genuine one even, but what exactly will be done about it? The article doesn’t suggest much in the actualy way of change, but does lay out evidence for the claim. Worth reading.

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Good piece over at MSNBC on how the big retail banks are ramping up technology to make the personal cash grab bank visits lightning fast:

The cash register’s “ka-ching” is nearly extinct. The “beep” of the automated teller machine may soon follow. Even the silent swipe of a card with a magnetic strip is destined to disappear.

In their place, you’ll wave a plastic card or a key chain fob over a receiver to complete a “contactless” purchase. You’ll deposit checks and cash without using an envelope and walk away with a more detailed receipt and nearly immediate access to those funds.

I spent only a little time developing technology for retail banking and it was a while ago. Let’s just say it wasn’t nearly as interesting as this stuff. If however you’re looking for something cool to work on these days, quite a few of these banks are moving in this direction…

Big banks like Bank of America, Chase, Citibank, and Wells Fargo are running pilot programs in major metropolitan areas like New York, Washington, Atlanta and San Francisco. Even though contactless cards are still officially in testing phase, users already number in the millions.

…so get hopping!

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There’s a very good piece over at The Globe and Mail that talks about the recent deregulation of the bond market and how it has affected the profitability of bond traders.

“Technology took a lot of the margin out of the business,” said Richard duBusc, a Credit Suisse banker who started working on Wall Street 40 years ago when the NYSE closed on Wednesday afternoons to catch up on its paperwork. “Is that good or bad? It’s bad if you’re losing your job. It’s good if you’re paying a tighter bid-ask spread.”

But is it technology or deregulation aided by technology that has caused this to happen? It seems that the financial gains in bond trading had less to do with lack of inherint technology and more to do with secrecy. I guess you can argue that technology enabled the federal government to insist upon a more transparent system that would have been more difficult to provide in previous generations.

he U.S. Securities and Exchange Commission began to break down the secrecy of the market in 1992 because of concern high-yield, high-risk bonds were being sold based on inside information about future takeovers. Former SEC chairman Richard Breeden’s probe into junk bond trading led to the creation of the Fixed Income Pricing Service.

Arthur Levitt, president Bill Clinton’s choice to succeed Mr. Breeden at the SEC, wanted a database to collect the prices of trades on all registered corporate bonds. That system, now operated by NASD, posts prices 15 minutes after trades occur.

The system, called the Trade Reporting and Compliance Engine, is known by its acronym, Trace.

I remember attending a lecture two years ago by an ex-bond trader turned corporate finance trainer at a major global investment bank. He said at the time that if you are a bonds trader and aren’t willing to change with the times and learn to trade other instruments that you’ll be out of a job. Technology and trading can blur the lines at times, but clearly trading requires an edge and a much different mind than a pure technologist, so I can’t really judge what it would be like. I can see years in advance when a language like C++ is destined to become niche and easily prepare for a transition. Financial markets are different beasts however:

One-quarter of all corporate bond traders, analysts, brokers and salesmen have lost their jobs in the past two years, according to Michael Karp, head of Options Group, a New York-based executive search and consulting firm.

One of Mr. Seifer’s former employees, Bill Fecci, who turned in his carpenter’s union card 10 years ago to become a corporate bond salesman, is back to hanging sheetrock on weekends to make ends meet.

The 40-year-old broker at Seidel & Shaw LLC in New York says his job on Wall Street will be eliminated by the end of the year.

“The future of this business is bleak,” Mr. Fecci said in an e-mail from a building site in Staten Island, N.Y. “Your opponent basically knows your cards and you basically know his. You don’t win very much, nor does he lose very much, and the exchange goes on without a net winner.”

I still suspect that technology will create more trading opportunities in the end than it will destroy, but it will always be a hard thing to truly measure.

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Well this time it maybe.. The Times Online reports that Britain’s biggest mortgage lender has accidentally made triple withdrawls on their customer’s bank accounts due to a technical error:

Thousands of homeowners have empty bank accounts after HBOS, Britain’s biggest mortgage lender, repeatedly withdrew home loan repayments from their current accounts. About 7,000 Bank of Scotland mortgage customers have had up to three mortgage payments taken from their current accounts on consecutive days this week.

Well.. uhm, isn’t this embarrassing. We have no way of knowing what kind of technology is driving this system, but wouldn’t it be quite interesting to find out? Well if you work in IT for finance and ever feel like your efforts are somehow disconnected from daily life, let this be a reminder to you that real people out there, real unsuspecting average people, are counting on you to do the best you can. No really, I’m being serious:

Judith Lomax, 48, an opera singer who has a mortgage with Bank of Scotland, said: “I have so far paid my mortgage three times this week. I was told that the payment may be withdrawn again today and tomorrow.

See what I mean?

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An interesting revelation (to anyone not working or following the internal development habbits over at JP Morgan) is that the bank is using Eclipse and the RCP (Rich Client Platform) technology to build their market data, pricing and research workstation terminals.

JPMorgan developers selected Eclipse largely for its RCP (Rich Client Platform) technology, which enabled the international financial powerhouse to build an internal development system known as OneBench.

OneBench is a deployment platform for RCP-based applications, said Bruce Skingle, a London-based distinguished engineer with JPMorgan’s Investment Bank Technology group.

Basically, OneBench is an alternative to a user desktop for deploying the Eclipse IDE (integrated development environment) to run business applications. In essence, OneBench is a user’s workbench, whereas Eclipse is a programmer’s workbench, Skingle said.

This is quite interesting, but even more interesting is that their choice came down to Eclipse and Java’s SWING:

Skingle said JPMorgan looked at several technologies as the basis for OneBench. Eventually, the company narrowed the decision down to the Java Swing GUI components platform and Eclipse’s RCP. Skingle said RCP won out because of its inherent plug-in nature. Now the RCP-based OneBench is viewed as the platform of choice for desktop application developers at JPMorgan.

This is worth paying attention to since any time it comes down to real-time UIs for finance, its often a tradeoff of performance and flexibility.

Yet, RCP stood out in graphical performance, Skingle said. Indeed, a proof of concept based on the Snapper UI showed that an SWT table could easily handle a 400,000-row data set with 1,000 updates per second.

Well I will reserve judgement for now since I have not had any first hand exposure to Eclipse or RCP as of late. That said I am interested in knowing how they performed their test. Was it just one grid? When it comes to UI performance I maintain that nothing should be as capable or performant as .NET’s Windows Forms because it provides the most tightly knit wrapper of the Win32 display system. How would RCP perform with say half a dozen Level II quote windows on the screen, in addition to an order blotter, real-time charting and all of the other typical 3rd party trading apps that run on desks today?

Hmmmm…

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With the recent meltdown at Amaranth, it hasn’t taken long for other funds to look towards outside technology to mitigate risk. CMP’s Wall Street & Technology report that Finetix has joined hands with Cadence Capital Group. I’m not sure how much this is joining hands as opposed to Cadence bringing in consultants, but in any case:

“Experience shows that market risk is never completely understood and rarely properly quantified, as most recently evidenced by the debacle at Amaranth,” says Babayev. “In our partnership with Finetix we look forward to leveraging their depth of development experience in the capital markets to build an extensive analytical platform that will enhance our risk management methodology and help us control our exposure to future ‘black swan’ events.”

It seems unlikely that a one-size fits all platform could ever emmerge from these types of relationships, and it also seems unlikely that we’ll ever be able to fully evaluate the success of such relationships. Yet you can’t blame anyone for looking to take extra precaution in the aftermath of such a major financial catastrophe.

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One thing that we like to cover here at WSTD is the demographics of financial business sectors. Recently we noted some mainstream media coverage of the trend to open up shop in Greenwich, CT. Now comes news that a major hedge fund services firm has gone a bit further into the Connecticut heartland:

A New York state firm that provides services to hedge funds has leapfrogged over Fairfield County to establish a large support operation in Hartford. In adding 150 jobs in downtown Hartford, GlobeOp Financial Services L.L.C. becomes the first company to take advantage of two job incentive programs that became effective July 1, the Job Creation Tax Credit and the Displace Worker Tax Credit.

In so doing, the company passed up on situating the facility close to Greenwich, whose large hedge fund cluster has attracted a number of supporting services firms. Greenwich also offers the advantage of being a quick drive from GlobeOp’s headquarters in Harrison, N.Y.

One might think, what gives? And the story does point out the plethora of insurance companies in Hartford and their skill-relevancy to hedge fund services. However there may be a more sinister motive at play:

“Hartford might seem … far enough way from Greenwich that maybe your employees might not as readily jump ship to go work for a hedge fund’s internal operations,” McGuire said.

Given that’s the case, this does work both ways. GlobOp may benefit from better retention, but they also deny themselves access to a talent pool that is probably smart enough to realize that moving to Hartford (or anywhere near it) is going to remove them from a safe regional workforce.

It will be interesting to see if anyone follows their move.

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In a move that you could see coming a mile away (and which I’m almost certain I recently predicted but am too lazy too look up a link for), several of the largest sell-side investment banks have announced plans to launch their own alternative trading network targeted at institutional investors and their block trade orders. Think Liquidnet but with all of the IT buearocracy and political infighting of Morgan Stanley, UBS, Goldman Sachs, Merryl Lynch and Lehman Brothers thrown into the mix.

“They’re the 33rd entry into this market,” said Robert Hegarty, an analyst with the Tower Group, said of the brokers’ system. “They’ve got a long way to go to get the pole position.”

Exactly… But then again, can anyone really blame them?

Analysts said the system was in some ways a defensive move by top Wall Street firms to keep business from institutional clients who might be tempted to trade with competing systems offering pools of anonymous buyers and sellers.

Well that ship set sail quite a while ago, but then again how soon did you expect a giant effort like this to come to fruition. In all seriousness I think the large banks are right to move in this direction, even if block trading is a small piece of their increasingly complicated profit puzzle. The problem is that it reminds me of the large media outlets that suddenly announced that they are going to have their own blogs. There’s something sadly ironic about it all and you know when you compare the blogs of an enterprising individual (or group of individuals) that it always outshines what passes for a “blog” over at the newsroom in Times Square.

Anyone who’s been on the inside of technical efforts at large sell-side firms knows first hand how complicated it can be to build enterprise-wide systems that involve the cooperation of everyone within the group. Intercine warfare abounds within one bank, let alone half a dozen of them. There’s something a little too johnny-come-lately about this announcement, but it’s worth watching over the next year nonetheless. The banks do afterall have the advantage in infrastructure, both technically and service-wise:

Still, he said the brokerages will have some big advantages, including the fact that their fixed costs are already in place.

“They’ve already got trading research, investment banking services to connect to the customer,” he said. “They’re in the perfect position to get the block order already.”

We shall see…

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Not really. We are in.. unviolent agreement it seems.

It’s always great to experience an outbreak of harmony on the web, especially having spent the years before HTML and the pretty image-laden web reading comp.* newsgroups with perhaps more than their fair share of CAPITALISED posts flying around.

I was thus delighted to see Benjamin Friedlin’s response to my gentle prod

The concept of performance, especially in the context of things like real time matrix pricing engines, is one that causes me endless fascination.

Go on, go on…

I have talked to quite a few different people about this issue, both verbally and virtually, and I have heard all ranges of opinion from people who are looking into designing ASICs to implement pricing algorithms in hardware (and I thought assembler was a scary maintenance proposition) through the likes of Benjamin who prefer to stick to languages like C/C++ to people who have implemented in java, but performed strange contortions to make sure their applications generate no garbage to avoid GC kicking in at all (some even looking for ways to turn off the collector) {Benjamin: I must admit that I have almost never seen J2EE involved in this kind of scenario}

It’s true, there do seem to be a variety of favored approaches, and I’m inclined to think they are more driven by the familiarity of their authoring practitioners than by what is the best way forward. I’d like to correct Peter in one place however. Although I favor C++ for such applications, I am an even bigger fan of even more esoteric methods, such as using SSEx assembly instructions and to go several steps further, using the GPU. My thoughts on those two methods however will be saved for another day.

The conclusion; there is no conclusion, certainly no right answer. As with every dimension of an engineering solution, you can only define performance with respect to the problem space. The only certainty is that - whatever your performance criteria - you cannot test performance into an application at the end of the development cycle. Build bits, performance test often and optimise as part of your development process (I’d love to hear people’s experiences of this cycle with the logic in an ASIC!) Sorry if that’s stating the blindingly obvious…

You’re forgiven! In all seriousness, I think Peter raises a good strategy when he suggests that one does frequent performance testing. Unfortunately in my experience I have not seen quant teams driven to do much performance testing. A lot of these desks are driven by one manager who’s in turn driven by measuring performance on returns. Certainly you’d think that would provide motivation for improving performance of the very algorithms that drives their trades, yet it’s rarely the case that big banks or even hedge funds want to step outside the line of the safe and proven technology of 3rd and 4th generation languages such as C++ and the managed choice of Java or .NET.

And clearly that is one of the great appeals of a vendor like Azul (Peter, don’t forget to send me that check). I think we’re going to be seeing a lot more innovation in this space and it might help to make this very debate somewhat of a moot issue.

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Some smart business developers and politicians in Pennsylvania have approached the top suits of several of the biggest buy-side firms in an effort to appeal to their prudent side and their desire to prevent downtime in the event of any catastrophic events that may cripple NYC’s financial infrastructure:

Declaring “we’ve got your back,” Pennsylvania officials and a developer Tuesday sought to coax executives from major Wall Street companies to establish backup operations in the northeastern part of the state as a way to safeguard their operations against terrorists.

Three helicopters whisked executives from Goldman Sachs Group Inc., Merrill Lynch & Co., Morgan Stanley and others companies from Manhattan to a resort in the Poconos. There they dined on filet and lobster and listened to a pitch for “Wall Street West,” an ambitious effort to build millions of square feet of office space and install hundreds of miles of fiber-optic cable in as many as nine Pennsylvania counties.

Managing risk is the essence of the financial industry. And what seemingly bigger risk is there than another terrorist strike? My only concern regarding this strategy is that any solution such as this can’t simply fall back on yet another easily targeted epicenter of technical infrastructure. It’s not immediately clear how this would be addressed and how the backup systems would be protected, but it’s worth noting that the efforts do have the backing of Washington:

The state also is expected to award a contract in November for the installation of hundreds of miles of fiber-optic cable from New York to Pennsylvania, a process that could take a year to 18 months. Meanwhile, the U.S. Labor Department has awarded a $15 million grant to the Wall Street West initiative for work force training.

There are lots of funny cracks I could make about politics and business, but this is a serious issue that effects the nation’s economic strength as well as the world at large. This is a good issue to watch and I hope that the solution for the long term is more robust than having one monolithic backup center in the Keystone state, and that is no knock on Pennsylvania, but a nod to the notion that a decentralized backup infrastructure is a better defense than one that is centralized. After all, if terrorists can penetrate the well funded defenses of 21st century NYC, how hard is it going to be to distrupt a single secondary location?

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