Key IT Initiatives for Capital Markets Firms in 2008

By Tom Schmidt

In drawing up its annual list of the top strategic IT initiatives for the capital markets industry, research specialist Financial Insights minced no words.

"If you think 2008 will just bring more of the same for capital markets IT, think again," wrote Julio Gomez, Global Head of Research at the Framingham, Mass., company. "The market forces we have identified are so diverse, and the imperatives so urgent, that only the most responsive, well-governed and rationalized capital markets IT organizations will deliver the capabilities necessary to not only keep pace but gain competitive advantage."

According to Financial Insights, this increasingly volatile environment will make information management and risk management two of the leading initiatives of the year.

"Technology executives will spend the year retooling for the borderless war that is the new capital markets," Gomez observed. "Shifting market structure, morphing buy-side and sell-side roles, and mushrooming execution destinations and asset classes all are bringing the monolithic, centralized IT organization with long-term project planning to its knees. In 2008, it's going to be all about rapid rollout of services -- prioritized by customer demand -- and focus on capabilities that differentiate in the market."

This article looks at why information management and risk management in particular will be top-of-mind initiatives for capital markets firms in 2008.

Information Management: The #1 Strategic Initiative
Financial Insights' top initiative this year, information management, includes the following key components: data center consolidation, storage, green initiatives, virtualization, Information Lifecycle Management (ILM) and data security. Not surprisingly, these components are connected in many important ways. For example, data center managers are increasingly turning to software solutions, including those to manage server consolidation and virtualized environments, as they develop and implement their green initiatives.

The study, based on focus groups and surveys involving nearly 900 managers, found there is more motivation to "green" the data center today than ever before. Data center managers say they're running out of space and energy costs are skyrocketing. Cost savings and the constant business pressure to maintain performance and meet increasingly aggressive service-level agreements are the main reasons managers give for implementing many green strategies.

In the words of the study, "For [these data center managers], it is beyond environmental concerns; it is about meeting business goals and reducing costs."

Interestingly enough, the study also found that those who implement a green data center strategy are more likely to use software for storage resource management, server management and data deduplication.

The First American Corporation could be a case in point. First American, the nation's largest provider of business information in areas such as title insurance and mortgages, is looking to reduce its data center power consumption by 25% through server virtualization and efficient data center design. Evan Jafa, the company's CTO, told CIO Digest Magazine that "virtualization is our number one approach to saving power." Jafa has even asked his team to reach out to power companies and get green certifications for the company's two data centers. Qualification under such a program will lower the cost per unit of power.

Consider also the opinion expressed at a recent roundtable organized by Financial Times Global Events and The Banker. One senior IT executive from the UK Financial Services industry said, "On the environmental issues, sooner or later they are going to impose a regulation on us. If we have no grip on our consumption of power and space also turns into an environmental issue sooner or later, then when the regulation comes along we are going to be in a situation where we are hit by some capital adequacy number that the regulators have come up with. They will say, 'Because you do not understand your carbon footprint, we are going to demand that you have so much money here,' or some such formula."

Software and services today enable IT organizations to undertake server and storage consolidation, migration and utilization initiatives with a software infrastructure that incorporates open standards, so data center managers can select the server and hardware platform of their choice. By increasing storage utilization and by helping customers with storage-tiering to reduce the need for power-hungry premium storage hardware, this software helps organizations reduce power consumption and floor space.

As for information lifecycle management, the latest ILM solutions are affecting IT organizations in profound ways:

• Standardized IT systems and processes
• Reduced cost of IT operations
• Reduced number of applications, hardware platforms and operating systems
• Improved service levels and efficiency
• Reduced number of vendors

For example, ING Investment Management Americas, the global investment arm of Amsterdam-based ING Group, recently reduced its ballooning storage costs by implementing a multi-tiered storage system with ILM. The tiered storage model reduced ING's cost per gigabyte of non-active archived data from $45 to $10 -- a 78% decrease.

At a time when the amount of data generated by data centers is exploding, with much of it needing to be protected in accordance with new privacy and government regulations, ILM solutions can help capital markets firms take charge of their increasingly volatile IT environment.

Risk Management: Data Protection and Recovery Are Vital
Every capital markets organization has a unique IT risk profile. But dramatic global changes in IT risk are affecting all organizations. There has been no shortage of "breakout" IT risk stories recently:

• Repercussions from the theft of more than 45 million customer credit and debit card numbers crippled earnings at clothing retailer T.J. Maxx
• A spree of denial-of-service attacks directed at Web sites in Estonia brought down government, banking and even small school Web sites
• Inadequate manual information management processes plagued Kaiser HMO’s kidney transplant center, disrupting and delaying essential patient care
• Her Majesty's Revenue and Customs in the UK lost CDs containing 25 million personal records, including financial details of more than 7 million families

So how to begin an effective risk management program? Involved as they are in hundreds of projects, busy IT departments may be tempted to view risk management as a one-off project, to be followed by adjustments to remediate specific deficiencies. While better than nothing, this approach is unlikely to yield satisfactory results. Instead, today's constantly changing global and regional business and technology environment calls for a continuous, process-oriented approach.

The following is a logical implementation sequence for controls:

• Security risks and controls Survey results for the IT Risk Management Report suggest addressing security risk first: Better security controls most strongly predicted improvement in incident expectations. And because information security is IT-centric, IT can act with less dependence on others to achieve easy wins and gain early momentum.
• Availability risk and delivery controls Delivery controls, closely associated with availability risk, had the second-strongest correlation with reduced incident expectations, according to survey results. Research also indicates that organizations facing higher levels of business process risk deploy delivery controls most often. And because business managers easily grasp the benefits of reduced availability risk, delivery controls are an excellent step in meeting business objectives outside the "glass house."
• Compliance/performance risks and strategic controls Compliance and performance risk most closely underpin business units' daily use of IT services. Managing these risks requires collaboration to align the actions of IT with the requirements of its business clients. Laying a foundation with security and availability risk elements prepares an organization for these more sophisticated conversations.

Managing IT risk rarely means eliminating it. Instead, IT risk management disciplines and practices help keep IT services flexible, adaptive and aligned to organizational goals in a constantly changing business climate. IT risk management can provide the insight that allows organizations to take calculated risks with confidence and use IT to drive competitive advantage.

Conclusion
Competitive pressures, technology innovation and ongoing regulatory changes all affect investments in capital markets IT. And as Financial Insights observed recently, this volatile environment is only going to accelerate in 2008. Regardless of their actual rank in a list of strategic IT initiatives, information management and risk management will be indispensable in improving the overall performance of every capital markets firm this year.

Tom Schmidt writes frequently about information security topics. He has more than 15 years' experience as a writer and editor in high-tech publishing.