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.

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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.

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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.

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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.

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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.

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The proliferation of low latency data feeds supporting the growing algorithmic trading market is one of the main drivers for what many people are calling CEP. The extent to which CEP platforms are actually being used and installed within the financial industry is fiercely debated between various reports, press releases, conferences and blogs.

Ultimately, CEP is the process of collecting related and unrelated real-time and historical data and events. Business logic is then applied to those events to detect patterns and conduct analysis.

In algorithmic trading, banks can use CEP, to monitor trades and calculate risk on a real-time basis supposedly allowing for real-time hedging. However, there is some evidence that CEP is being used for risk monitoring, fraud detection and surveillance as well. Last year the US Financial Services Authority (FSA) installed the Progress Apama event processing platform to power its SABRA II transaction monitoring and market abuse detection system, for example.

Despite this, there are some who argue that the promise of CEP does not translate into a good enough business case for the installation of CEP.

Parallel to the activity around promoting CEP, there is a reality within banks dealing with requirements to analyse real-time information and to feed the incessant demands of algo trading engines.

Key findings

• Banks are starting to use CEP for feeding data into algorithmics trading systems as well as for finding dealing opportunities and trading pairs across asset class.
• Risk monitoring, fraud detection and surveillance are also growth areas for CEP.
• CEP installations at banks tend to be localised and seen as experimental rather than main stream technology.
• The costs and infrastructure issues surrounding CEP development may not be fully understood by bank staff interested in ‘cool’ technology.
• Streaming SQL, although well-used, may not be the best language to develop CEP engines.

Conclusion

Ultimately, CEP is not an off-the-shelf application; its benefits rely on being tied into a firm’s internal business model. The technology of CEP enables business rules and logic to be realised for use in functions such as algorithmic trading and surveillance. It is no wonder that the financial industry is interested in using this technology to find dealing pairs, monitor risks and detect fraud.

However, as with any ‘cool’ technology there is a tendency for its hype to overpower the realities of developing, installing and maintaining a relatively young IT environment.

The emergence of third party vendors, Apama, Aleri and Streambase among others, it is evident that there is a market for CEP in the financial services. However, most agree, while the talk around CEP will continue for some time, any real, mature market penetration will probably not happen any time soon.

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Data management and data cleansing is one of the most challenging and most ignored problems within the financial markets industry. The issue caused by the quality of data is no more pronounced that with the risk modelling and management departments.

In addition to the wide variety of data sources providing data in slightly different formats, there are a number of industry drivers that are adding to the data cleansing conundrum. Those include additional regulations, increasingly complex instruments, new market participants, IT goals related to straight through processing and increased use of data aggregators.

Attitudes around fixing the data cleansing and quality problem are wide ranging. Some are compliant feeling that data management within investment banks will always be fraught with inconsistencies and incomplete information. Some throw responsibility back to the vendors, asking the data providers to work to standardise delivery formats. While others remain perplexed that the financial industry as a whole has so far failed to develop a common identifier scheme for financial data.

Key findings

• Two ways – Most banks split the data cleansing process between external and internal data.
• Most problems – It is the internal data that causes the greatest data cleansing challenge. But data quality among vendors is an industry wide issue.
• Clean enough – Data quality and cleaning is a relative concept within bank, and ‘clean enough’ is the workable option.

Conclusion

With the current economic crisis improving the methods and use of proper risk management techniques is now a headline concern. One of the main ways to improve a risk model is to improve the quality of the data that goes into it.

Investment banks employ teams of staff just to authorise and map a wide variety of data to the appropriate systems and applications. 100 percent clean data is never going to be an achievable goal, not within the modern, global investment bank.

There are many ideas around how to fix the data quality problems. However, the overwhelming attitude to data quality is one of complacency. It is an issue that has to be dealt with, but can never be fixed. Clean and consistent data is a relevant concept, not just between banks, but between models and even instruments. For the time being the financial industry is resigned to inputting data that is merely ‘clean enough’.

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In addition to personnel, the expenditure on technology will be one of the most substantial costs that a bank has to allocate for. Similarly it is one of the most important as well, therefore it needs to be researched and selected accordingly to suit the client, product offering as well as the business model. 

Key findings

• Current practice – In a recent study that Lepus conducted on vendor technologies and trends, one leading vendor servicing the banking industry told Lepus that clients have a dedicated risk customer advisory boards where they share best practice methodologies and feed this information back to them.
• In response to client requirements the vendor told Lepus that they are working on a selection of projects. This is of no surprise given the recent changes that have occurred across the capital markets.
• Technology – The technology tools and solutions need to reflect and account for the changing dynamics of the business. Flexible, more comprehensive and robust solutions are fundamental, and the ability to scale up or down will be very important during these volatile times.

Conclusion

Given the complex nature of the business at today’s banks, with a myriad of trades occurring in a blink of an eye, there is a growing need to implement more robust technologies across the front, middle, and back offices. Leveraging such solutions across the enterprise should attract and reassure clients and help to manoeuvre in these increasingly fast paced markets.

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With the rapid uptake of tools such as Blackberrys, smart phones and laptops in recent years, the notion of ‘out of office’ or ‘mobile’ working practices has significantly taken hold and continues to increase at an alarming pace. This again is not only driven by smart phones which allows mobile or remote workers to push emails and manage documents on the go but with the proliferation of mobile broadband, the boundaries of mobile working and remote access have been pushed to a new high again. Increasingly, mobile workers are being forced to adopt a ‘follow the sun’ work ethos.

Key findings

• Drivers – Lepus uncovered the main drivers behind the strong uptake of remote access working practices to be improving work life balance, increasing productivity, increasing business as usual activities and the ongoing developments and advancements in remote access technologies and systems.
• Technology – Remote network access gives employees great flexibility regarding when and where they perform their job functions. The rapid development in virtual private network (VPN) technology has led to the growth in ‘follow the sun’ workers.
• Risk – One of the key risks uncovered by Lepus interviews and further research was that some banks have established disparate remote working networks rather than one centrally managed system and have failed to implement the required remote worker policies and network access controls.
• Vendors – Banks use a host of solutions and tools to provide remote access capabilities. These range from Blackberrys and other smart phones to increasingly advanced laptops with access to highly secured VPN networks. In addition, Lepus research established that Citrix still remains as one of the key leaders in this space.
• Future trends – Remote access has already become an integral part of most leading banks’ business strategies. Its importance will continue to grow as users have greater access to their company networks from a wider variety of sources and locations as well as the ever increasing growth in mobile devices and technologies.

Conclusion

The significance of remote access and the benefits it provides to financial organisations and their staff cannot be underestimated. Remote access working practices have grown rapidly over the last few years which have been driven by various factors such as terrorist attacks, pandemics, increased productivity and so forth. Furthermore, as this space continues to develop and more banks adopt flexible and remote working practices, this growth will continue at least into the near to medium future.

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Activity in the energy risk market as been flurried in the wake of the recent global financial meltdown. While all sectors of this risk industry may not be on the up, there are others that are. There are many areas that make up this portion of the risk market, namely: oil, natural gas, carbon, electricity, coal, weather, emissions, freight, base metals and precious metals. This report will focus on the four key big players, which are carbon, gas, electricity and weather.

Key findings

• Overview of the market – The year ahead will be one of recovery as opposed to previous years that have been marked by sustained periods of growth. However, it is not all gloomy but liquidity has dried up and risk appetite has severely diminished.
• The dreaded R word – The energy risk market will now as a result of the financial calamity be forced to endure the onslaught of financial regulation that is set to hit the sector in the coming months.
• Vendors – there are several dominant key players in this market that have successfully fought against the market downturn over the past year.

Conclusion

The year ahead will be one of recovery rather than growth. Overall energy risk markets have had a rollercoaster ride over the past year but business has not been dire. However, ti is necessary to highlight that while business is good, the financial turmoil slowed progress, hit liquidity and starved the risk appetite that was once so prevalent in financial institutions. In addition, the market looks set to be burdened by the suspected deluge of regulation.

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