Web boon for bourses

By Mitali Kalita | 24 Apr 2003

Mumbai: Web services is perhaps the only technology concept that has gathered lots of attention in recent times. With lots of promises, Web services claims to change the way business is conducted today. Though the evolving integration concept has gathered so much of hype, the financial services sector seems to be slower in adopting the new technology.

Though the financial services sector - especially the capital markets firms - have not yet welcomed Web services, there are speculations that firms are experimenting with the new technology to ease up their integration, both internal and external. In a recent report, Jim Adamczyk, an associate with Accenture''s Financial Group, said: "Companies are definitely looking at Web services as a standard and a tool inside the corporate firewalls."

TowerGroup, a top research and advisory firm on the global financial services industry, reports that by 2005, Web services will still represent only $8 billion of the $350 billion spent on IT by financial services institutions worldwide. Though interest and spending on the new integration concept will continue to grow, the TowerGroup projects that the vision of the "networked financial services institutions" will not be realised until the end of this decade, at the earliest.

The surfacing of the new platform - independent, flexible technology - holds some positive signs for the capital markets to serve as a better choice of integration concept with more advantages than the existing practices. Web services will make it possible for a customer to access mutual funds, mortgages and any other related products of a bank through a single interface and all in a single session, which will definitely save his time and energy.

New ''connecting medium'' and its promises
Integration has always held top priority in the global capital markets scenario and these firms have been known to implement almost every known middleware exchange technology that has been evolved since the fifties. The rudimentary inter-enterprise integration means that were in vogue were handwritten blotter tickets, individual spreadsheets, faxes and other stovepipe systems.

Now, Web services has garnered support in this sector as it enables, "dissemination of fast information" which is indeed the backbone of the capital markets. Thus, the new integration concept:

  • Serves as a cheap integration medium with complex and expensive propriety alternatives.
  • Reaches out to the small and mid-sized organisation, which was left out due to cost involved in enterprise application integration (EAI).
  • Promises to create universal approach by integrating applications, processes or people, irrespective of the technologies associated with them.
  • Integrates incongruent applications thus connecting organisations with their myriad partners and customers, both internally and externally.
  • Reduces development and maintenance cost of software applications; boosts application service providers.
  • Promises to establish itself as the easy, cheap ''connectivity medium'' over the existing EAI medium.
  • Allows securities firms to expose their applications to institutional clients.

In a recent report, Dushyant Shahrawat, senior analyst, TowerGroup, said the brokerage firms have the most to gain from implementing Web services. According to him, Web services can break down monolithic applications into software components, thus driving down integration costs. The buy-side institutions, which were forced to purchase integrated portfolio management, compliance, trading and order-management platforms can swap out components rather than rip out the entire system.

Now, Web services can decouple these four products sitting on the same system. Moreover, if the buy-side wants to replace the fixed-income functionality with an order management system, they can buy the best-of-breed solution from multiple vendors and install it with their proprietary-application suite, which was an impossible task in the past.

Let''s take a short journey through XML and simple object access protocol (SOAP) because the Web services concept is incomplete without these two components.

Extensive mark-up language - the perfect healer
XML, the founding technology behind Web services, has been enthusiastically welcomed by the financial services sector. According to ZapThink, an XML-focused industry analyst, the pressures of integrating complex, disparate systems, straight-through processing (STP) and trade-plus-one day (T+1) settlement are making XML adoption a reality. The group predicts that the expenditures on XML technologies by the financial services sector will grow to $8.3 billion by 2005 from $985 million in 2002.

Practically, XML-based solutions seem to reshape the future capital markets arena because they:

  • Offer a means to internal integration of feeds from various applications.
  • Ease data integration and consolidation, thus allowing creation of hubs for risk, trade and customer information.
  • Enable the creation of architectures, which can be easily complimented and interchanged.
  • Remove dependency of firms on single legacy systems, and give the opportunity to make the right choice from multiple vendors.
  • Allow the purchaser to evaluate complex trade practices without the pain of reformatting, thereby improving market efficiency.
  • Enable electronic clearing, bidding goodbye to manual paper work.
  • Help in describing the non-static nature of traded products.

There is no doubt that XML will bring about tremendous changes in the whole business process from pre-trading to post-trading, and participants and vendors have almost guaranteed that XML will be the next technology stopover for capital markets in the future.

SOAP - still miles to go
Simple Object Access Protocol or SOAP is a simple, lightweight protocol for exchanging XML information over the Internet to invoke Web services across a network.

No matter how many disparate systems, Web services or applications the data travels across, the technology is designed in such a way that the receiver will be able to clearly read the data as it was originally sent - in a nice, clean package.

Recent research reports that SOAP''s XML messages are not suitable for transferring bulk data. So, the use of SOAP standards will definitely affect the capital markets, which deals with huge amounts of data for communications. The standard is criticised for being inefficient, as you need to send more data to communicate than the existing techniques.

Lack of security measures in SOAP is compelling enterprises to restrict their Web services experimentation to smaller projects rather than pilot projects.

STP - the next revolution
Though the deadline for STP and T+1 settlement is three years away (2005), the financial services and securities companies are gearing up for the big automation move, as it will help them to discard redundant manual processes from pre-trading to final settlement.

As the leading solution for enterprise integration, Web services plays a very significant role for financial services firms to deliver STP. In a recent BEA survey of the top 100 US-based financial institutions, 85 per cent of respondents said that Web services would play a role in STP within the next two years.

Darren Oberest, vice-president of financial services at webMethods, said in a report that Web services would help companies to leapfrog into the next generation of STP, where customers can access firm''s services automatically. For example, Web services will enable a large bank embed a brokerage firm''s trading system into its own banking applications, he said.

Web services have capabilities to help out innumerable financial institutions like the hedge funds, to seamlessly integrate their own legacy systems with the best product from multiple vendors. The result is an industry-wide STP that gives the opportunity to even the smallest buyers for real-time connectivity to core services and utilities.

A viable option or an impractical wave?
Currently, there are no laid-out standards for electronic communications of security identifiers, orders, quote requests and allocation instructions. Web services may turn out to be a saviour for the industry. But, security and reliability are the main concerns behind practical implementation of Web services in the securities industry that is highly risk-prone.

In a report, Gwen Alexander Moertel, IT director for Wachovia Securities Inc''s equity capital markets division, is of the opinion that her company has no plans to use Web services for mission-critical applications such as trading due to security reasons. She also said she is never going to use Web services to send instructions for her million-dollar trades.

A TowerGroup report predicts that most securities firms would remain suspicious of Web services until mid-2003, when the technology will begin to mature and prove itself in certain areas. But, the report also forecasts that the technology may be dismissed by people in 2003, and then picked up again in 2004 and 2005.

Except security and reliability, Web services have all the potential to serve as the most viable, inexpensive, economic alternative for service delivery and STP mechanism. With promises to cut down business application integration costs, to unite disparate business applications regardless of their platforms to bring better business returns, Web services has created a lot of hype all around the industry.

As its adoption has not been substantial in the financial services sector, it is difficult to assess its impact at this point of time. It could be that only after three-to-four years that people would be able to witness whether Web services has really kept its promises.



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