Thursday, June 21, 2007

SIFMA Exhibition: Has the Lemon been Squeezed Enough?

It was a great SIFMA show in many ways, but also one which took me back to its roots. I remember when it was in much smaller quarters at New York's Sheraton Hotel, instead of its current footprint across three floors of the New York Hilton. Back in those days content technology advances offered relatively few trading advantages to individual organizations on the desktop - it was more a matter of making sure that you had the right specialized equipment in the back rooms feeding the trading floor. Years later we seem to be back where we started. The drive to reduce the cost of trading transactions in the face of disappearing trading profits in public markets has made the SIFMA show a gathering with relatively few high-profile desktop trading solutions being touted to an ever-decreasing population of decision-makers purchasing them. Traffic was reasonable but clearly down from earlier years. It's a flat world out there in finance - except in niches such as hedge funds where information innovation still drives profitable trading strategies.

There were a few key themes that I saw taking shape at this year's show:

Everything old is new again. I enjoyed a few minutes chatting with Jeffery Wells, now VP of Product Management at Exegy, a provider of infrastructure for ultra-low latency market data feed processing. For several years the solution touted by Wall Street firms was to shove huge banks of standardized blade servers at trade tickers to be able to keep up with information surges. But with the cost of energy increasing rapidly greater single-platform efficiencies are beginning to look more attractive. Shades of the "minicomputer" revolution of the 1970s and 1980s - custom computing platforms are coming back, thanks to new economics in trading.

ASP financial content services are becoming a reality. While financial trading partners have long used private networks to communicate with one another the push for cost controls is leading to some interesting developments in networked services. Collabnet is a service that enables customers that include investment banks to collaborate on software development with outsourcing partners in Asia and elsewhere. What's interesting is that Collabnet provides this as an ASP-based service instead of installing it in-house on private servers and networks. Nothing new in the greater world of business but remarkable when you consider how reluctant investment banks have been to open their operations up to ASP services before. Also demoing at the show was, an ASP-based sales force automation tool with financial modules integrated via its AppExchange service. Is Wall Street ready for a wider range of ASP-based content services? The push for economic operations seems to be pushing secure ASP content solutions to the forefront. Don't rule them out from your own product plans, but be ready to have your answers in hand for how you manage security.

Rapid development of executable trading strategies is powering low-latency data feeds. Automated trading based on high-speed data feeds has been around for years, but these days "real time" feeds need to have sub-millisecond delays for trading strategies to be effective. But equally important is the ability to tune trading strategies as rapidly as possible to take advantage of the speed of these feeds. Vendors such as Progress Software were demonstrating capabilities that allow new trading strategies for low-latency feeds to be turned around in a few hours. As important as the speed of feeds can be the ability to translate your knowledge of market conditions into automated decision-making seems to be fueling many boutique solutions.

Mining the Web and other sources is helping banks to build their own custom content. One of the more exciting types of tools highlighted at the show were packages that made it easier to mine and aggregate content from both traditional and non-traditional sources in interesting ways. FirstRain was demonstrating highly personalized research services that enable its clients to get information from many major published sources and internal sources tailored to their exact needs. Connotate was demonstrating Web mining capabilities that enable investment banks and other institutions to quickly develop custom research and data from any number of online and proprietary sources. While getting high-quality subscription databases is still an important part of the research equation for finance tools such as Connotate and FirstRain are allowing institutions to define custom sources of content that are feeding decision-making processes with unique insights that may give financial institutions an advantage in the marketplace. With the ability to define structured content dynamically these types of services are accelerating the ability of institutions to gain insights from any potentially valuable content source.

What happened to the graphs? For years you could walk down the aisles of this exhibit hall and be overwhelmed by the number of charting packages made available by content and software vendors. While charts were certainly a part of the mix, the emphasis on automated execution via low-latency feeds has placed more of the analysis investment for real-time content into algorithmic trading packages. However, a retail-oriented analytics package from Blocks combined a drag-and-drop financial modeling package with a charting package to enable retail investors to develop sophisticated trading strategies and to trigger them off of charted real-time data events. A nifty combination that would have been the envy of many a trader not so many years ago and now available for you and me. Graphing is still an important analysis tool for financial content but it's far from the cutting edge for most financial services these days.

Lots and lots of small companies. While SIFMA has always had its fair share of up-and-coming companies in its mix the show was notably heavy with startups and small innovators this year. Certainly Reuters, Thomson, Sungard, IBM and others had significant footprints this year but there were many more small companies working their way into main-floor and mid-floor footprints that would have been relegated to upper-floor boonies in past years. While not necessarily a good sign for the short run I take this as a good sign for the years ahead. Hopefully we're witnessing a new wave of innovation for the financial content industry that will begin to drive new products and services away from traditional data delivery platforms and towards more innovative forms of collaboration and execution. This is an industry starved for really fresh ideas right now, but with so many fundamental infrastructure issues sussed out in recent years expect financial institutions to begin to invest anew in fresh looks at the world of financial content.

So yet another SIFMA show sails into history. Let's hope that next year's addition features a little more buzz and excitement in the hall generated by something other than Sopranos stars, slot cars and scantily clad young ladies.
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