Data centre virtualisation projects have a ripple effect throughout an organisation’s infrastructure and operations. Before embarking on data centre virtualisation deployments, there are a number of considerations which must be made. Collapsing multiple physical devices into software affects the people and processes supporting the data centre. Therefore, enterprises should thoroughly evaluate how business processes, administrative rights, capacity planning, performance monitoring tools and security strategies will need to change.

Key Findings

• High availability implications of virtual machines – The spare capacity afforded by retaining an extra 25% to 35% capacity helps address failover and disaster recovery when determining the appropriate number of virtual machines (VMs) to consolidate onto a single physical host. Evidently a tier-1 European bank explained how the failure of a given VM on a physical host will not affect the operation of another VM on that host, because each VM has its own isolated set of compute, memory and power resources. 
• Partitioning – Two leading European banks recommended that partitions should be set up to segregate a particular type of virtualised server farm from another, such as database servers from web servers. Otherwise, malware aimed at one server farm might make its way to the other servers.
• Time services – A recommendation that was noted from two banks was that clients and servers must agree on a time of day to properly synchronise files. Timing services are also important to system security. For example, computers connected to the internet must keep accurate time for evidence gathering in the case of a system break-in. Encryption and authentication protocols also require accurate time on both server and clients.
• Vendor packages – Lepus findings highlighted that two of the interviewed banks currently use VMware solutions and another leading organisation currently uses Citrix. Having said this, all three institutions cited that they are completely satisfied with their vendor packages and would happily recommend them to other banks.    

Conclusion

Virtualisation involves turning a number of physical hardware computing and networking devices into software and loading them on to a common high-powered hardware platform. When deployed in enterprise data centres, it affords a number of cost and energy-conserving benefits. Still, organisations can hardly go into a virtualisation project without assessing how such a project will impact traditional operations, both technically and organisationally.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

As a result of the economic credit crisis of the last year and a half, the role of the risk manager has been given greater importance. The risk manager’s previously diminished role was partly a result of the belief that risk management methodologies have been unable to keep pace with the high octane pace set by the various trading desks.  Regulators are ensuring that banks are able to capture and report all aspects of its risk profile, gathering as much data as possible in doing so. This then seems to be leading to a move for risk departments to move to real-time to allow them to catch greater and more up to date information.

Key findings

• Current practice – The risk management methods such as end of day VaR and liquidity calculations currently used by banks are very similar to those that were being used on the eve of the credit crisis. Although VaR has been heavily criticised, it is still found to be effective when supported with greater stress and scenario testing.
• Drivers – Regulatory pressure on industry practitioners to provide greater and more transparent data. Heavy fines will be handed out to those who do not comply.  Although senior managers, in reaction to regulatory pressure, want to see more up to date figures, they are currently unsure as to the gains from an enterprise wide move to real-time risk management.
• Strategy – Research has found that most of the banks spoken to are yet to move to enterprise wide real-time risk management. Though VaR and liquidity models are calculated at the end of day, real-time stress testing has been universally adopted.
• Benefits and Challenges – It can be concluded that banks currently believe that costs of real-time risk management heavily outweigh the modest benefits. Obvious benefits such as greater accuracy of risk positions, with information being captured, analysed and reported after individual trades are offset by the cost and time issues involved with utilising the tools.

Conclusion

While there are obvious benefits to real-time risk management relating to greater accuracy to risk positions and transparency, the general consensus from banks is that the switch over is a costly and complex undertaking. It seems as though there is a greater demand for the voice of the risk manager to be heard by board members, although the information they are parlaying in these meetings is not as of yet exclusively calculated in real-time. It may just take the heavy hand of the regulatory bodies to convince banks of its worth sooner rather than later.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

In July 2009 the FSA fined HSBC more than £3m for failing to protect sensitive data. The FSA’s review into the case led many banks to reassess the way in which they look after sensitive data. This extends far beyond customer data on the retail side and also covers information on employees, and sensitive information on other institutions.

Key findings

• Data Protection – All of the banks spoken to stated that their information polices require sensitive data to be appropriately protected. While none of the banks specifically mentioned any specialist encryption software at this stage, it can be seen from the responses below that password features in Microsoft Office, as well as Win Zip are widely used.
• Email – The greatest threat to banks in terms of data leakage is via email. While stories of laptops being left on trains, or CDs going missing in the post generally grab the media attention, an estimated 80% of data leakage actually occurs through email.
• Clear Desk Polices – Clear desk policies are a simple measure that can help to prevent data loss. While the principle is clear, such policies may be difficult to practically implement and monitor. All of the banks interviewed said that they have clear desk polices in place and that desks are usually kept clear of confidential information.
• Disposal of Waste – One area of data leakage that is often overlooked is the disposal of waste. Confidential documents, or files on PCs that are discarded with regular rubbish can easily fall into the wrong hands. All of the banks spoken to stated that they address the requirements for secure destruction in contracts for the disposal of waste.

Conclusion

Due to the very nature of data leakage and the size and complexity of firms within the financial services industry, by no means is it something that can be eradicated overnight, if at all. However, through enhancing email monitoring systems and data encryption policies, alongside sound education and training banks will be well placed to prevent their names from making the headlines for the wrong reasons.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

Profit and loss (P&L) is an important element of financial reporting, and monitoring P&L performance is essential, with the front office, product control and accounting all drawing critical information from the process at different times during the day.

Key findings

• Current systems deployed by banks – Banks deploy a combination of both home-grown and third-party systems across their business lines, with many citing a preference for in-house solutions. Third-party solutions include those from players such as Murex, Quartet, and StreamBase.
• Centralised P&L repository – Banks tend to collate information from separate P&L systems that carry out the calculations, which are then fed into a central repository.
• Integrated vs. disparate systems - While there is some movement towards integration between P&L calculations and accounting systems, systems remain separate for risk computations and systems for the purpose of regulatory purpose and internal controls.
• P&L calculations – Half the banks interviewed undertake the same calculations across their business lines, while others perform different calculations. Today, traders generally have access to flash P&L on a daily basis, with the final P&L produced on T+1.
• Control & management – Product control is gaining significant presence and role within banks, ensuring controls are performed on a daily basis to complete verification.
• Buy vs. build – While two banks plan to continue with in-house implementations, other banks are increasingly considering third-party solutions that can help achieve a fast return on investment.
• Future strategy – Investments are planned to tackle issues such as the reliance on manual processes, spreadsheet risk, and disparate systems.

Conclusion

The global investment banking industry has increased its awareness of risk and P&L management practices significantly as a result of the financial crisis that hit the market in 2008. A lot more emphasis is being given to the quality of internal management and control systems as a key way to prevent trading losses and fraudulent activity experienced in recent years.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

Selecting the appropriate operating system is important for Investment banks as it helps them support critical applications, driving growth while providing scalability and security. This report seeks to examine the current trends around the use of operating systems in the banking space

Key findings

• Key operating systems deployed – Sun Solaris and Microsoft Windows have both existed in the financial services industry for some time. Linux is also increasingly used. Other operating systems have been assessed as part of pilot projects, however at a very small scale.
• OS preferred in certain parts of the bank – While Sun Solaris tends to be deployed on main servers to power larger applications, Linux tends to dominate the development workstations and deployed on low-end servers.
• The mainframe area continues to be dominated by Unix – While there has been movement from Unix to Linux or Windows, a significant share of these migrations are so far workloads from small Unix-based systems
• Windows 7.0 – Many banks are currently making use of Windows XP and few made the move to Vista. Having skipped this upgrade cycle, banks are instead assessing the jump straight to Windows 7.0. However, migration projects are generally being delayed until at least the end of 2010.
• Virtualisation - Virtualisation is a notable trend in the OS space, supporting the increased utilization rate of servers. This technology enables banks and other organisations to run several different operating systems, as well as the applications that are running in those operating systems, on a single machine.
• Key challenges – Main concerns raised by banks include: difficulty in obtaining business buy-in for new OS investments, lack of openness and standardisation among vendors, concerns around migration to Windows 7.0 from XP, and uncertainty around Sun’s future product roadmap, due to its acquisition by Oracle.

Conclusion

Banks continue to rely on Unix for the high priority mission critical applications, with some movement towards Linux and Windows for smaller tasks. Linux OS has made major progress in the industry as banks strive to reduce costs, increase efficiencies while addressing legacy systems and enhanced interoperability. However, investments are being delayed in the short term due to the tough economic climate. Nonetheless, investments are being made as part of post-merger integration projects or where a clear ROI can be achieved in a short timeframe.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

The securities lending market is expected to continue to grow by 5% in the US and 10% in Europe according to recent industry analyst reports. In this expanding market the need to improve efficiency and drive down costs is never far from the mind of the business manager. Securities lending is an area in which there is still considerable scope for efficiency improvement as it is one of the last areas to have fully embraced automated processing. The lack of automation, evident in front, middle and back office activities, is largely due to the variable nature of the trades and the complexity of the operational lifecycle. This is particularly true in international lending, where the cross market complexities make automation even more challenging.

Key findings

• Improved pre-trade support – Three leading banks stated that having a real-time consolidated, global positions management system, from which the trader can see long and short positions at a glance, puts the trader firmly in the driving seat.
• Standing out from the competition – All of the banks that Lepus interviewed agreed that the characteristics that have always differentiated one firm from another include the ability to provide fast, quality service, access to a wide range of securities, and flexibility of collateral acceptability. All of these factors help lenders get the best returns on the securities they manage.
• Diverse collateral types – The US banks that were interviewed cited that in the US market, ‘cash is king’ in terms of collateral, and most market participants are well positioned to manage any associated cash re-investment. Whereas, the two leading European banks stated that the opposite is true in Europe, with high quality, non-cash collateral such as government bonds being the preferred option.
• Handling higher volumes – Recent market volatility, along with the push for business expansion, has resulted in increased volumes for securities finance.

Conclusion

Participants in the securities lending industry have choices when it comes to automation. They can choose to implement a standard system, or those with deep pockets and generous timelines may opt to invest in in-house developed systems. While the industry has progressed technologically at a measured pace to deliver innovations to specific business functions, disparate systems can pose problems with gaps in processes and overall accountability.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

Banks need to start being more aware when it comes to the matter of rogue trading. This needs to be for the long term rather than just trying to appease staff, investors and the media in the short term. The preventative methods should be ongoing and a consistent process. It is no longer sufficient to just merely comply with regulation as this has clearly not worked in the past, as this report will outline. Instead, the financial industry needs to wake up to the fact that rogue trading events have occurred and will occur if the organisation’s approach does not change. It is a sad indictment on people’s character but for many people, if they can get away with fraudulent activity they may be sorely tempted. That attitude needs to be quashed and the way to do this is for banks’ attitudes to start changing.

Key findings

• Crime is Indiscriminate – There is no discrimination on bank sizes, wealth, investment tier or where it is globally situated. Instead what it shows is that greed and some traders’ arrogance is in indiscriminate and demonstrates that many banks have fallen prey. However, this does not abscond banks from any responsibility regarding this topic.
• Time for change – There is a real need for information to give managers a holistitic view of all relevant operations, with sufficient IT systems that enable communications between departments, while highlighting risks and controls.
• Change is a’happenin’ – In the wake of rogue trading events last year, banks went to revisit and confirm other control framework. If there is one positive thing to come out of rogue trading scandals it is that firms have stepped up control methods against these events. However, this is not enough.
• Focus of attention – While rogue trading was still very much on the agenda, there was a distinct feeling that it was disappearing once more off the radar. This is known as Disaster Myopia.

Conclusion

Rogue trading scandals are a popular media topic designed to rile the investment banking industry and consumers. Incidences of financial crime are a sad indictment on the financial services industry due to the huge amount of losses, both in monetary terms and also reputation. Such examples of financial crime have shaken the industry but gradually the passing of time quells any sense of urgency when it comes to preventing rogue trading as other more recent events take precedence. The question still lingers as to how big a rogue trading scandal does there need to be before the industry seriously takes note and alters its monitoring and controlling methods for the long haul. It is all very well, the sector altering its practices in the wake of the scandal but realistically there needs to be a more continual conscious awareness of this act.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

Adopting a comprehensive approach to managing technology assets and resources has never been more important. However, using disparate IT related information that spans across the enterprise and converting it into useful and meaningful information may not be an easy task by any means. Furthermore, in order to align the technology with business needs, IT departments need to have more commercial awareness in addition to their core technological skill set.

Key findings

• Current practice – According to research conducted by Lepus the dashboard is also used to escalate issues up the hierarchical chain, and is used by various stakeholders, i.e. departmental heads, senior management as well as the IT risk group.
• Technology – Banks have to continuously consider the buy versus build paradigm across their many business lines and functions, however, as far as the CIO Dashboard and toolset is concerned the latter seems to be the trend at the five banks that Lepus consulted for the purposes of this study.
• Organisation – Research has also found that in addition to a more consistent view, the reporting framework has been enhanced. The dashboard makes it easier to report to senior management and allows decisions to be made on the basis of more robust and readily available information.
• Future outlook – As far as future plans and initiatives for the CIO Dashboard are concerned, there was a split between the banks spoken to. Three of the banks are not looking to do anything drastic with their dashboard in the imminent future. However, one top tier European bank mentioned their aspiration towards a more integrated and holistic approach.

Conclusion

The majority of banks spoken to, do not have one specific tool in place that they call their CIO Dashboard. As far as the build versus buy model is concerned, all of the banks spoken to have taken matters into their own hands, relying on internal resources to develop and implement their tools and processes. Some of the main reasons for this were identified to be cost savings as well as flexibility. The CIO Dashboard leads to greater visibility, transparency, assisting and facilitating engagement with the key stakeholders in the organisation.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

FX markets around the world have withstood the events of the past eighteen months surprisingly well. Prior to the fall of Lehman Brothers in September 2008, the total daily volume of FX trades had been steadily growing.

Key findings

• FX Business overview – The FX market experienced something of a boom throughout 2008 with trading volumes reaching previously unforeseen levels, largely due to increased interest from buy-side firms. FX businesses typically trade plain vanilla products such as spots, forwards, and swaps, as well as more exotic options, though research suggested that there would be something of a flight to simplicity in the current environment.
• Technology – With the inherently global nature of the FX market it is favourable for banks to have global systems. This point was demonstrated most clearly by one tier-1 European bank who said that the global nature of their systems enables them to quote the same price for a currency pair anywhere in the world. All of the banks that Lepus spoke to stated that they have global FX systems, though inevitably there are areas with certain discrepancies.
• Risk – As the landscape of risk management has changed as a result of the credit crisis, it is becoming increasingly important for all the stakeholders to be aware of the risks associated with trading certain products, including technologists. Promoting an all round risk aware culture is something that many organisations are keen to do. As such, while technologists would pay particular focus to operational risk, it is important to look at some of the other risks facing the FX business at present.
• Future trends – Research has shown that there is huge potential for growth in the FX market over the next few years. Has buy-side firms continue to show interest in this area, the nature of the market and the underlying technology will be forced to adapt.  Investment in building out the capabilities and stability of e-trading platforms is likely continue, but also, banks are likely to invest in their Back Office FX processing systems, to ensure they are able to keep up with the expected increase in traffic.

Conclusion

As the FX market evolves, it will cease to be the playground of the major investment banks. As volumes continue to grow, more and more players will be attracted to this highly liquid market and those failing to invest in the infrastructure required to process this high volume of electronic trades will be left by the wayside.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

There has been a surge of interest over the past year in finding ways to decrease the power, cooling and space requirements of the data centre. Hardware accelerators are billed as one of the technologies that may be able to assist this. Typically hardware accelerators are far more power efficient than CPUs and due to the fact that they exploit multiple levels of parallelism, they offer vastly increased processing power.

Key findings

• Most viable hardware accelerators – It seems at present that the most viable hardware accelerations technologies are GPUs. However there seems to be a lot of interest in Larrabee from Intel and this may turn out to be the most successful on it’s release.
• Window of opportunity – Some have suggested that there will only be a limited window of opportunity for hardware acceleration technologies. However, only one of the interviewed banks firmly believes this.
• Lack of skill in the market place – In line with previous research in this area, this report found that there is a shortage of people in the financial services industry with knowledge of programming for hardware accelerators.
• The role of the quantitative analyst – The role of the quantitative analyst will very likely have to change going forward. Quants will have to become more aware of the infrastructure they are programming to.
• Investing in optimisations – At present banks are not very quantitative in their approach to optimisations. As the cost of new hardware is so cheap, it is very easy to put forward a business case to simply buy new hardware.
• Outsourcing – Only one of the interviewed banks is actively looking at outsourcing more of their IT. The most popular model seems to be a compute on demand type arrangement.

Conclusion

Ultimately the credit crisis has made it incredibly difficult to predict what may happen in this area. Hardware acceleration technology has been on the radar of the leading banks for a number of years now, but the inevitable cuts in IT spend have forced these projects to remain on the back burner.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.