Big Nets and Big Deals:
How High Finance Does High Tech

by Frank Barbetta
Business Communications Review

Nobody knows exactly how much the financial community spends on networking technologies and services. Individual companies have highly customized and confidential master plans for technology, which makes getting a handle on specifics tough. About the best number comes from The Wall Street Telecommunications Association (WSTA, Red Bank, NJ), which estimates that its 145 members combine for more than $12 billion in buying power for networking products and services worldwide.

Another organization, The Securities Industries Association (SIA-New York), has not conducted any comprehensive study of capital expenditures, budgets and associated personnel and support costs for telecom, MIS and DP. If it ever does so, the figures are likely to be colossal: SIAÕs 750 member firms account for 90 percentÐ $100 billion-of the securities' industry revenue inthe U.S. Jim Slaby, banking/financial industry program manager at Bay Networks (Billerica, MA), notes, ÒFor years [financial services firms] have been on an information technology buying spree; they are always the first to adopt.

While actual numbers are hard to come by, identifying the issues that WSTA and SIA members care about is a bit easier. For example, in response to a late 1995 survey conducted by the WSTA, 56 respondents identified the following as having the greatest impact on networks in 1996 (see Table 1):

• LAN-based applications.
• E-mail.
• Market data distribution-information and analytics to support decision making.
• ISDN.
• Frame relay.
• Centralized LAN backup.
• The Internet.
• ATM.

In addition, when asked about future networking challenges, 44 WSTA members responded with broad but classic concerns about networkingÕs nuts and bolts: reducing costs while increasing bandwidth and speed for both voice and data communications (see Table 2). Similarly, SIA says some of the technology mega-issues of high-ranking importance to its members are:

• Tighter management of technology and vendors-what is their value-add and how do they affect P&L statements?
• Will outsourcing become the rule?
• What are the trends in partnering between vendors and customers?
• Client-server implications.

Dialing for Dollars

Almost nowhere in the financial community is the rapid communication of voice calls, buy/sell data and support information more critical than on trading room floors. Technology is relatively expensive for this environment $75,000 to $100,00 per position Gerald Tellefsen, senior vice-president of the Tellefsen Consulting Group (New York), recently reminded a WSTA conference.

But clearly this is a high-priority area. Forty-seven respondents to the WSTA survey said that, within the next two years, they had plans to add trading floors in North America, South America and Asia (29 percent each), and in Eastern Europe (21 percent). Both the WSTA and SIA say that there is strong interest among their members in 24-hour trading services (mostly in the U.S.) and on how the trading floor can evolve into a "virtual environment" i.e., linking geographically dispersed trading floors.

Another way trading floors may become "virtualized" is through the growth of traders working at remote sites or from home. Trading room design consultant Robert E. McFarlane, president of Interport Financial (Montrose, NY), sees these remote sites being tied back to the "mother" trading floor via umbilical links, but he warns, "for a long time to come, the synergy of the main trading floor wonÕt be replaced."

While both voice and data are important on the trading floor, voice remains the prime driver. Today, Wall Street often relies on Òhoot and hollerÓÑtraders use loudspeakers and microphones to alert each other or effect a transaction-while dial-in traffic between traders and their customers is handled by PBXs and trading turrets-communications stations that permit single-button access to hundreds of people. Virtual trading would add more PBX-like features to turrets, such as direct inward dialing, interfaces for virtual private networks (VPNs), calling line ID, call transfer and tie lines, which would allow more direct links between traders and customers.

Among the vendors adding PBX-like features to turret products are IPC Information Systems (New York), VBand Systems (Elmsford, NY) and BT North America (New York), and the combination of turret and PBX technology is embodied in the Hicom Trading Systems announced by Siemens Rolm Communications (Santa Clara, CA) several months ago. Among the early buyers of the new Hicom system are Sherwood Securities (Jersey City, NJ), Dean Witter and Trade Point America (both of New York).

Today's trading environment (see Figure 1) typically has separate on-premises facilities for data and voice, and a series of NonStop voice arrangements from turret systems and PBXs into wide area networks (both public switched telephone networks and global virtual private networks-VPNs). Virtual trading (see Figure 2) involves integrating CTI applications, ISDN and ATM, while building links to both turret switches and PBX equipment. The virtual trading concept also relies more on global VPNs than the PSTN for WAN connectivity. Gregory Langford, marketing vice president of IPC, does not believe that the new functionality being added to trading turrets will result in PBXs being replaced on trading floors. Instead, he predicts a coexistence, with PBXs handling intracompany, back-office voice traffic and nontrading calls, both inbound and outbound.

Interport's McFarlane summarized the goal of virtual trading voice networks as "allowing users to have PBX-like functions, and giving the perception that one trading telephone turret system covers the globe. The networks to handle this are exhibiting greater bandwidth availability and better compression techniques. Frame relay and ATM are fitting more into the total picture for combining voice and data."

Data Drivers and Demands

While voice is the primary influence on the trading floor, the WSTA survey underscores how important LAN-based applications, email and market data distribution are on the financial community's overall plans for global networking. In this context, financial firms appear no different than many other enterprises-host architectures are being displaced or supplemented by client-server and Unix-based servers/workstations. Sun Microsystems (Mountain View, CA), Hewlett-Packard (Cupertino, CA) and Digital Equipment Corp. (Maynard, MA) have been among the major vendors, but all are under assault by Microsoft's Windows and NT.

In a recent issue of Waters, a magazine for IT professionals in the financial community, Leslie Tortora, global technology chief and a partner at Goldman Sachs & Co. (New York), said that while Goldman, like most Wall Street firms, views Unix as its main platform for trading and sales, NT is making inroads for desktop publishing, word processing, spreadsheets andother applications. And as in other industries, the networks serving the financial community are moving to higher-speed LANs, migrating from LAN routing to LAN switching and implementing ATM. Both Slaby and Tellefsen point to the financial "derivatives" product phenomenon as placing major new processing and communication demands on network facilities.

Derivatives require the use of multiple databases, mathematical indices and other real-time information to design and customize financial offerings for investors. In short, derivatives consume lots of bits. "Derivatives are like a form of financial CAD (Computer-Aided Design) and have a big impact on data networking," said Bay's Slaby. Voice and data on the trading floor typically run over separate wiring schemes, but Slaby believes more CTI and voice/data integration will emerge. Meanwhile, he claims, mainstream data applications have the greatest impact on networking bandwidth and frame relay usage is growing. While acknowledging that ATM has not taken this market by storm, he asserts, ÒATM has penetrated Wall Street. They buy a lot more ATM than others do.Ó Carrier VPN Solutions

The financial community's global networking requirements are expanding, particularly in Europe and South America. Wall Street firms have tended to contract directly with domestic and international carriers and look to global carrier partnerships and alliances for transmission and switching. Despite everyone paying lip service to RFPs, the most common practice is to negotiate with carriers on an almost sole-source basis.

Gartner Group (Stamford, CN) projects that by 2001, at least 10 percent of the multinational enterprises with total annual revenues above $1 billion will enter into "one-stop shopping" contracts with global carriers. Gartner expects that non-U.S. service providers will enjoy dramatic increases in revenues by 2001, as the alliances have the potential to make network management and operations easier than if customers were to undertake those tasks on their own. But Gartner issues a caveat: these global contracts should include service-level agreements with strict deadlines and time commitments for establishing/restoring service.

Members of the financial community are already leveraging global network and operating service arrangements with fee-based network management services. For example, three contracts were recently awarded to AT&T Solutions (Washington, DC) along these lines:

• MasterCard International (Purchase, NY)Ñto design, build and manage a transaction-processing network for financial services and data networking in more than 30 countries, including credit- and debit-card transactions (more than $500 million settled daily). The deal includes network management, CPE maintenance, and program and network engineering management.
• Merrill Lynch & Co. (New York) Ð to build a new inbound/outbound software-defined voice network, maintain on-premises data facilities and construct a new VPN for data to support Merrill LynchÕs Trusted Global Advisor (TGA). The TGA includes features such as online access to client statements, email, research and analytics, as well as customer profile data. As part of the TGA effort, Merrill Lynch also has contracted with Sybase (Emeryville, CA) for database management and with IBM for about 25,000 Pentium-based PCs running Windows NT and a proprietary shell program developed by Merrill Lynch.
• J. P. Morgan (New York) Ð to handle global network operations management as part of the bankÕs Pinnacle Alliance outsourcing group. Pinnacle will manage about one-third of J. P. MorganÕs $1 billion annual technology expenditures, and it is projected to produce savings of about 15 percent in overall technology costs over the life of the seven-year agreement. For Pinnacle, J. P. Morgan also recruited Computer Sciences Corp. (El Segundo, CA) as prime, Andersen Consulting (Boston) for applications development and maintenance support and Bell Atlantic Network Integration (Arlington, VA) for distributed computing services. About 900 J. P. Morgan staff members associated with these activities are slated to keep their jobs, but they will become employees of the various Pinnacle Alliance partners.

Network management and support for all three of the projects listed above will be handled from a new $40-million, 70,000-square-foot Global Client Support Center, located near Research Triangle Park, NC. This AT&T Solutions facility opened in April, and it will be linked to regional centers under construction in Singapore and Amsterdam. The MasterCard and Merrill Lynch arrangements will substitute VPNs for existing private-line data networks. Both companies will use AT&TÕs frame relay services and routers from Cisco Systems (San Jose, CA).

Since 1993, for example, MasterCard has operated a 17-location transaction network using more than 100 packet switches from BBN (Cambridge, MA). According to Arthur Ahrens, senior vice president of operations at MasterCard's Global Technology and Operations Group (St. Louis), the system operated at 99.99999 percent reliability, but the combination of waning product support from BBN, global availability of flexible solutions like VPN and MasterCardÕs expansion plans were all factors in the decision to start anew.

Ahrens also anticipates greater use of TCP/IP, as eight of MasterCard's bank/financial institution members are replacing IBM System 1s with NCR 3345/3430 communications processors. The latter supports TCP/IP over a VPN, while the Series 1s do not. By the end of 1996, the VPN will connect those MasterCard members with global hubs and data centers located in St. Louis and Lake Success, NY. Those locations are equipped with NonStop (Cupertino, CA) fault-tolerant transaction machines and other big number crunchers.

Both MasterCard and AT&T Solutions will monitor the VPN's performance. "We'll offer members the ability to send all their data on one net, with one service delivery end point," said Ahrens. "Moreover, in terms of bandwidth, the VPN is basically limitless; with VPN and Internet this is a totally global utility. VPNs really make it all possible, and we have access to AT&T's World Partners so we can get guaranteed service, preference on circuits and connectivity."

As Ahrens sees it, the main challenge is the Herculean task of migrating from the BBN to VPN structure. ÒWe have to get off the old and onto the new without inflicting any pain on anyone at any time."

Another global VPN solution emerging for the financial community is spearheaded by IXnet (formerly International Exchange Networks, based in New York City). IXnet was launched in July 1995, when IPC acquired an 80 percent interest and provided IXnet with $5.5 million in working capital. IXnet had been founded a year earlier by its president David A. Walsh, who has been a consultant to New York Commodities Exchanges and a technologist at both Garban and Garvin Guybutler and Drexel Burnham Lambert Trading. According to Walsh, IXnetÕs mission is to provide common equipment platforms, end-to-end management services, fast call setup times and global bandwidth on demand.

The firm's "on-net" offering includes purchased or leased facilities, the use of Nortel (Raleigh, NC) DMS and network management systems and customized access equipment (the 46020) from Newbridge Networks (Herndon, VA). This in effect creates a VPN without points of presence switching between other public carriers' networks. IXnet also offers dedicated private lines, off-net long-haul access and, in NonStop with IPC's digital turret systems, a virtual global trading environment.

IXnet is active in about 23 countries, and has network operation centers in New York and London, with another 9 or 10 anticipated by the end of 1997. With its VPN offering, tailored services and 25 percent savings on on-net versus off-net calls, as of early June 1996, IXnet had signed up at least 25 financial service firms, including Soros Fund Management, Deutsche Bank, AIG Bank, Phiboro, West Merchant Bank and ING Barings.

Conclusion

The financial community has a reputation for being at the cutting edge of technology. It was among the early adopters of PCs, workstations, LANs, routers and hubs, on-premises CO switching and ACDs, as well as advanced carrier services and arrangements with alternative carriers. Moreover, as the economy has become globalized, so have financial services firms. But this is an industry that has learned, often the hard way, that what goes up must come down. Gerald Tellefsen pointed out that while Wall Street "often spends lavishly" when the stock market is flush, if the market "goes south," so do orders for new equipment and services.

Among the winning technologies and services are VPNs and technologies that support faster electronic trading-hand-held terminals, wireless phones, access to trading desk technology from remote locations and broader access to market, customer and in-house data. Tellefsen also sees increased use of the Internet and intranets, more global electronic markets, emergence of multimedia applications and "faster, cheaper communications."

How the Internet will be integrated into all this, however, remains to be seen. While companies devoted to Internet trading are beginning to emerge and overall usage of the Internet continues to grow, the WTSA says Internet use among its members is not increasing Òat the pace one might expect.Ó The financial community is also still testing and/or exploring CTI, desktop conferencing, groupware, multimedia and voice recognition.

When it comes to migrating to new technologies, financial service firms are not immune to the problem facing firms in other vertical markets: an installed base of disparate hardware and software platforms and connections to many different networks. This dilemma needs to be addressed before a cohesive, coherent global networking plan can emerge.

Finally, the financial industry is seeking greater savings and bulk buying power arrangements, especially for global carrier services. The SIA already has a number of such arrangements for its members: a long distance program with Sprint offering up to 35 percent savings, with at least 15 participating firms; a deal with Nynex in New York City for a Òprivate area networkÓ consisting of at least 25,000 voice and data circuits and saving about $12 million for a consortium of 115 securities firms; a local access deal with Teleport Communications Group (New York) covering a number of cities in the U.S. and overseas; and an agreement with UUnet Technologies (Fairfax, VA) for Internet access, security and World Wide Web services.

Reprinted, with permission, from Business Communications Review; copyright 1996 by BCR Enterprises; 950 York Road, Hinsdale, IL 60521; (800) 227-1234.

TABLE 1
Technologies Expected to Have the Greatest Impact on Networks in 1996 Percentage
LAN-Based Applications	59%
Email	45%
Market Data Distribution	43%
ISDN	38%
Frame Relay	29%
Centralized LAN Backup	26%
Internet	26%
ATM	21%
Desktop Conferencing	19%
File Transfer Protocols/Telnet	19%
World Wide Web Services	17%
Multimedia/Video	17%
Computer-Telephone Integration	14%
Voice Recognition/Speech to Text	10%

TABLE 2
Future Networking Challenges in Order of Importance
	1	2	3	4	5	No. of Responses
Reducing Infrastructure Cost	36%	17%	25%	11%	11%	44
Increasing Bandwidth	32%	34%	7%	18%	9%	44
Increasing Speed	25%	25%	20%	19%	11%	44
Enhancing Security	20%	29%	20%	17%	14%	49
Connectivity Remote Users	19%	17%	34%	13%	17%	47
Segmenting Traffic	13%	21%	26%	19%	21%	38

Source: Wall Street Telecommunications Association

A Wish List for Global Carriers

According to Stephen M. Leaden, president of Leaden Associates (New Windsor, NY), a telecom technology consulting service for financial firms, the trend among carriers for worldwide services is "to provide on a global level the offerings we have come to accept as standard on a domestic basis." He lists the important services and technologies as follows:

• Virtual Private Networks and Facilities Management: Five- to seven -digit intracompany dialing with uniform dialing plans and Òon netÓdirect connections (versus dial-in) with low rates per minute, fast connect times and, possibly, bandwidth on demand.
• Frame Relay: Replacing X.25 packet switching.
• Videoconferencing: Via ISDN and 56 kbps.
• International 800, Automatic Number Identification and Computer -Telephony Integration (CTI): For customer support, call/profile data and predictive dialing.
• Voice/Data Integration: ÒFat pipesÓ rather than separate circuits.
• Global Internet and Intranet Services.
• ATM: for high-speed data, video and imaging, supported by SONET/SDH

Frank Barbetta is East Coast editor of Business Communications Review. He has been covering the communications industry since 1975.