You are the Chief Advisor to Robert Steele the new CEO at Wachovia. What business process would you suggest be reengineered? Attached is the case.
Securities trading is one of the few business activities
where a one-second processing delay can cost a company
big bucks. Wachovia Corporate and Investment
Bank is addressing the growing competitive push toward instantaneous
trading with a comprehensive systems overhaul.
In a project that has cost more than $10 million so far, Wachovia
is tearing down its systems silos and replacing them
with an infrastructure that stretches seamlessly across the
firm's many investment products and business functions.
"Competitive advantage comes from your math, your
workflow and your processes through your systems. Straight through
processing is the utopian challenge for Wall Street
firms," says Tony Bishop, senior vice president and head of
architecture and engineering. The first step in the project, according
to Bishop, was to prepare a matrix that cross-referenced
every major function (such as research, risk management,
selling, trading, clearing, settlement, payment, and reporting)
to each major product (debt and equity products, asset-backed
finance, derivatives, and so on). The project team then had to
take a hard look at the existing systems in each cell.
"We looked at the current systems and said, 'Where can
we build standardized frameworks, components and services
that would allow us to, instead of building it four different
times in silos, build it once and extend it into one common
sales platform, one common trading platform and so on?'"
The resulting Service Oriented Enterprise Platform is
connected to a 10,000-processor grid using Grid Server and Fabric Server from Data Synapse Inc. In its data centers, Wachovia
brought in Verari Systems Inc.'s Blade Racks with quad core
Intel processors. Bishop says he's creating a "data center
in a box" because Verari also makes storage blades that can be tightly coupled with processing blades in the same rack. The
processing load at the bank involves a great deal of reading
and writing to temporary files, and the intimate linkage of
computing and storage nodes makes that extremely efficient.
"We now do pricing in milliseconds, not seconds, for either
revenue protection or revenue gain," says Bishop. The
advanced infrastructure has tripled processing capacity at
one-third the cost, for a nine fold financial return, Bishop
adds. Report generation that used to take 16 hours is now
done in 15 minutes. "This is where IT becomes the enabler
to new business capabilities," he says.
Executing complex strategies based on arcane mathematical
formulas, algorithmic trading systems generate thousands
of buy and sell orders every second, many of which are canceled
and overridden by subsequent orders, sometimes only a
few seconds apart. The goal of these computer traders is to
profit from minute, fleeting price anomalies and to mask
their intentions via "time-slicing," or carving huge orders
into smaller batches so as not to move the market. A one-millisecond
advantage in trading applications can be worth $100
million a year to a major brokerage firm, by one estimate.
The fastest systems, running from traders' desks to exchange
data centers, can execute transactions in a few milliseconds?
so fast, in fact, that the physical distance between
two computers processing a transaction can slow down how
fast it happens. This problem is called data latency?delays
measured in split seconds. To overcome it, many high frequency
algorithmic traders are moving their systems as
close to the Wall Street exchanges as possible.
Wall Street's quest for speed is not only putting floor
traders out of work but also opening up space for new alternative
exchanges and e-communications networks that compete
with the established stock markets. E-trading has
reduced overall volatility in the equities markets, because
volatility is a product of herd buying or selling, and trading?
responding instantaneously to tiny price fluctuations?
tends to smooth out such mass behavior. It has also
provided established exchanges with new revenue opportunities,
such as co-location services for companies that wish to
place their servers in direct physical proximity to the exchanges'
systems. E-trading also has created opportunities for
a new class of vendors?execution services firms and systems
integrators promising the fastest possible transaction times.
At its most abstract level, the data-latency race represents
the spear point of the global movement to eradicate barriers?
geographic, technical, psychological?to fair and transparent
markets. "Any fair market is going to select the best price from
the buyer or seller who gets their [sic] order in there first," says
Alistair Brown, founder of Lime Brokerage, one of the new school
broker-dealers, which uses customized Linux servers to
trade some 200 million shares a day. "At that point, speed definitely
becomes an issue. If everyone has access to the same information,
when the market moves, you want to be first. The
people who are too slow are going to get left behind."
Wachovia Chief Advisor to Robert Steele
Wachovia Corporate and Investment needs to reengineer the algorithmic trading system since it generates thousands of buy and sell orders. Speed is the ...
The chief advisor to Robert Steele the new CEO at Wachovia are examined.