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“People aren’t coming out of college knowing C and C++, they’re coming out with Java degrees,” says Guy Churchward, vice president of WebLogic Products at BEA Systems. That’s part of the reasoning behind BEA’s announcement this week of WebLogic Real Time 2.0, an application server that offers microsecond latency for Java applications.

Although many US exchanges are enjoying increased valuations after much publicized IPOs, most exchanges will spend less on technology over the next few years as they answer to shareholder pressure, work to reduce IT expenses and focus on consolidating data centers, said Dushyant Shahrawat, research director for Towergroup's Security & Capital Markets service, at the Towergroup Financial Services and Business Technology conference today in Boston.

It was only four short years ago when Robert Hegarty, the managing director for Towergroup's Securities & Investments practice, made the statement that the NYSE trading floor will never go away. How quickly things change. In his presentation today at this year's Towergroup Financial Services and Business Technology conference, Hegarty joked, "Oops, I'm eating crow on that one, but soon we will all be eating crow in a very nice restaurant on the floor of the exchange" after the exchange eventually closes all of the trading floors. Hegarty highlighted some of the notable staffing cutbacks that many of the broker dealers and specialists have made in the past few months as they continue to reduce their floor presence on the NYSE.

This morning, Wachovia announced that it will buy A.G. Edwards for $6.8 billion in cash and stock. The deal is expected to form the second largest retail brokerage in the U.S. after Merrill Lynch. The combined firm will have almost 14,800 financial advisors and 3,300 brokerage locations.

Industry observers give the merger a thumbs-up. “Post-acquisition, Wachovia’s business model will be unique as it will be one of a few firms that are top three in retail banking as well as retail brokerage,” says Alois Pirker, senior analyst at Aite Group. “Today, many firms (like Charles Schwab, for example) are aiming for a dual business model, where they can provide both top-notch brokerage and banking products and services to their retail clients. However, increasing cross-selling amongst these businesses will be a crucial success factor for the combined unit.” Wachovia will also need to turn its brokerage business into a successful wealth management business -- a transition firms like UBS Wealth Management USA and Morgan Stanley have found very difficult to make, he says. “Merrill Lynch is still a few steps ahead in this aspect. Size is not everything, but assuming Wachovia will be able to master the challenges mentioned above, the firm has the potential to become the benchmark for a new breed of retail brokerage/banking firms.”

A senior wireless executive at a large Boston-based brokerage told me today -- and backed up his argument with some serious stats -- that mobile technology will be the next area that financial services firms try to dominate in order to capture and retain users.

The race among the dark pools to top each other’s volume figures is heating up.
Last Friday, Goldman Sachs disclosed via email that its alternative trading system SIGMA X executed over 100 million shares on a single data, Thursday, May 25th.

According to Goldman, 103 million shares were crossed and the notional value traded was $3.7 billion in 2,837 unique symbols. Average daily volume in the ATS has grown 47 percent month-to-month.

Although I'm not a fan of the word "telepresence" -- for me it conjures up strange images of Teletubbies and seances -- a Wall Street executive told me last week that his firm was taking a serious look at telepresence, meaning a type of presence awareness technology. So when HP invited me to a telepresence demo they were running uptown this afternoon, I accepted. I was a bit surprised to be ushered into a soundproof studio and sit facing a wall of high-definition monitors broadcasting live images of HP executives in London, Georgia, and California, all staring straight at me (and vice versa). I was filled with questions (why did I wear this outfit? why did I agree to a videoconferencing demo when I have 17,000 things to do back at the office?), but I have to admit the technology was impressive. The video quality and display were extremely clear -- the California executives placed a bar chart under a document camera and I could read very small numbers on it. The sound and video were perfectly synchronized -- a welcome change from the last time I saw a videoconferencing demo, in which the voices and moving mouths were comically (and distractingly) misaligned. Several people could also talk at once in different locations and all be heard.

Having witnessed a surge in demand for its financial software offerings – from 150 financial services customers in fiscal year 2006 to 214 financial customers in FY 2007 – Tata Consultancy Services tomorrow will set its financial software group loose as a new entity called TCS Financial Solutions.

The group will be headed by N. Ganapathy Subramaniam and have 2,560 employees, 1,800 of them developers. The existing product suite, called BANCS, includes software for CRM, core banking, global custody, corporate actions, lending and borrowing, payments, insurance, private banking, wealth and online trading. TCS Financial will sell these applications under three different models: as licensed products, as a complete yet customizable platform, or as hosted services.

Since posting the story "BondDesk Gives Odd-Lot Fixed Income Marketplace an Institutional Makeover", I received a few comments disputing that BondDesk was the first ATS to focus on odd-lot executions. I am not qualified to make this judgment on my own so I'd like to share with you what folks had to say.

One reader who posted a comment, said: "This is incorrect. BondExpress, BondTrac and ValuBond were the first to focus on odd-lot bond executions." ( I went to BondExpress's Web site and learned that t became part of ValuBond in 2002. I also learned that BondTrac Information is a Web-based direct-counterparty financial information provider based in Oklahoma City, Oklahoma. BondTrac, which began in 1996, provides fixed income offerings and analytics to financial and investment companies.)

In response, BondDesk issued the following statement:

“BondDesk was a pioneer in electronic bond trading platforms. Its predecessor was BondExchange, founded in 1995 as a technology vendor, providing technology for online fixed income trading. After the Securities and Exchange Commission passed its regulation on alternative trading systems in 1999, which defined exchange activities, BondExchange became a broker-dealer in October 1999 and restructured to become BondDesk and MuniGroup (now just BondDesk).

Today, BondDesk is by far the leading retail broker platform in the odd-lot marketplace. Other companies may have also been involved in odd-lot bond execution (via bulletin board or other methods) in the early days of electronic trading, but BondDesk was the first to successfully market an easy to use and full featured (ATS) retail broker platform."

Meanwhile, a second reader who sent an email to me commented that BondDesk's entry into the institutional market is nothing new, noting that "TheMuniCenter has been soliciting and trading with the buy-side, in a completely live and anonymous environment, since it became a broker-dealer in 2002." The reader suggests that that other fixed-income ATS's are adopting the anonymous trading model after offering a fully-disclosed model to the buy-side failed.

What can we learn from this? Competition is alive and well in the fixed-income trading marketplace and those who are in the retail adviser end of the marketplace are probably also thinking of going institutional if they have not done so already.

In a move that will put a smile on the faces of large and small financial services firms, the U.S. Securities and Exchange Commission (SEC), has approved guidelines that will make it easier – and less costly - to comply with the Sarbanes-Oxley Act.

Meanwhile, the PCAOB body that oversees auditors, has voted on changes to audit rules too.

A new study has found that the Web application security landscape is still fraught with danger – and financial services firms had better watch out.

At least seven out of popular 10 Web applications have vulnerabilities that could potentially lead an unauthorized party to steal critical personal information such as social security numbers or transfer money to their accounts, according to a report by Santa Clara, Calif-based Cenzic .

BondDesk Group is expanding its electronic fixed-income marketplace for odd-lot securities into the institutional investment community, the company will announce on Friday.

“We’ve been driving hard to get this platform out to the buy-side marketplace,” says Peter Harker managing director at BondDesk Group, which has been quietly evolving BondDesk Institutional (BDI) into a product. BondDesk currently aggregates inventory from over 110 broker dealers, and has 30,000 live offerings on the platform. “The beauty is to have a enough inventory in one place where the buy-side money manager can come in and it’s one source for them,” says Harker.

Since we issued dire warnings about the viability of New York City's power grid during the coming summer months in our June issue (Don't Panic, But the Grid's Going Down), we learned this week that the Department of Homeland Security and Consolidated Edison are testing a potential solution. The DHS project will invest $39.3 million over the next four years in new superconductor cables that are designed to prevent blackouts caused by power surges.

"This is about Wall Street, this is about making the electric grid for the financial capital of the world ... more defensible against potential problems," stated Jay M. Cohen, undersecretary for science and technology at DHS.

What'll the cyber crooks think of next? Well, this isn't a new idea and it certainly isn't the type of flashy heist you will see in this summer's sequel Ocean’s 13 with George Clooney, Matt Damon and crew. But hundreds of account holders have lost funds after a most likely phony firm named Equity First generated random routing and account numbers and tried to deposit one cent. If the one-cent deposit clears, the fraudsters know the account is active and they begin to withdraw funds. And for financial firms, it's just another risk to add to the list.

Marc Lackritz, CEO of the Securities Industry and Financial Markets Association, and the voice of the U.S. broker-dealer community, testified last week in front of the Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investments. In his testimony, Lackritz reaffirmed SIFMA's support of a single-regulatory force and the adoption of a principle-s based regulatory approach. Being one of the most influential lobby groups on Capitol Hill, SIFMA has considerable sway in regulatory matters, and their staunch support of regulatory reform may yield meaningful change in the way securities firms are governed.

Read the full testimony here (PDF).

Costs to comply with the Sarbanes-Oxley governance law dropped last year for the third year in a row, largely because managers have been spending less time on reviews.

Eyeing the market for loan-only credit default swaps, Creditex Group has acquired a minority stake in Trade Settlement Inc. (TSI), a privately held company that operates a post-trade processing platform for syndicated bank loans.

As part of the transaction, both companies are also announcing a partnership between TSI and T-Zero, an independently managed subsidiary of Creditex Group, which operates a post-trade affirmation platform for credit default swaps. The partnership will enable T-Zero, a technology agnostic firm, to expand its affirmation platform into the syndicated loan market.

Now that Thomson and Reuters have officially agreed to merge, pending regulatory approval (which may take a long time), the question is, how will this combination affect the two companies’ market data customers? How will pricing and customer service change?

"For most of us, it's tough to fathom these two firms coming together because they've been competing with each other for so long," says Sang Lee, managing partner, Aite Group. "But overall it's a good fit and the combined companies will provide interesting competition to Bloomberg."

As brokers prepare to comply with the Pilot Stocks Phase of Regulation NMS scheduled for July 9th, the NASD issued guidance last week clarifying how member firms should report their trades to the tape. The notice provides guidance on how to use the NASD’s new transaction reporting modifiers when brokers are reporting trades that are exceptions or exemptions to Rule 611 of Reg NMS to NASD facilities.

The next domino toppled today for floor-based specialists, as Bear Stearns announced it will write down the value of its specialist business, Bear Wagner, by $225 million. Firms all along Wall Street have been re-evaluating their specialist staff as the New York Stock Exchange has implemented its Hybrid market and shuttered one of its trading floors. Other firms to have slashed specialist numbers include UBS, Bank of America, Credit Suisse and Van der Moolen.

Today, IBM announced that it is redirecting $1 billion per year toward increasing energy efficiency in IT. Every so often IBM announces that it’s redirecting $1 billion toward something – for instance, in 2006 it was information management, in 2001 it was Linux – and thus pumping up existing software and services in the category and adding new ones. Today’s announcement shows that Big Blue has a strong interest in being perceived as green.

Not only do companies have to worry about stolen laptops, rogue employees and hackers -- now they also have to worry about fake SEC examiners.

With full implementation of Reg NMS just around the corner and MIFID looming in Europe, broker dealers on both sides of the Atlantic are busy navigating new regulations. But what are the regulatory implications for a broker dealer who executes deals with countries around the world?

New York-based securities firm Auerbach Grayson provides trade and post-execution services in 103 countries, representing more than 250 equity and equity derivatives exchanges across the world's developed, emerging and frontier industries, from France to Uganda and North Korea to Bangladesh.

Broker dealers are waiting for regulators to clarify certain issues in advance of the July 9 Reg NMS implementation date, according to a panel at the Securities Industry and Financial Markets Association (SIFMA) Market Structure conference last Friday.

The majority of the unresolved issues are around the block trade exemptions, when to time the trade and print to the tape and sweep and what to do with the residual that is left over, said Christopher Concannon, EVP Transaction Services at a href=http://www.nasdaq.com target="_blank">The Nasdaq Stock Market. There are also questions about self-help procedures as well as certain order types such as intermarket sweep orders or ISOs.

The United States Government Accountability Office released a report (PDF) on its latest year-long study on the resiliency of U.S. financial markets last week, and the results were mixed. After examining seven critical exchanges, clearing organizations, and payment processors, the GAO determined that the financial industry's progress in ensuring resiliency in the face of disaster was promising, but there is still much work to be done. The report's discussion of communications between the GAO and SEC were intriguing, indicating that disaster preparedness in the U.S. may evolve from being a matter of common sense to being a matter of regulatory compliance.

Now that the merger of NYSE Euronext is complete, the global exchange conglomerate has begun to roll out a commercial technology business that will provide connectivity to liquidity sources around the globe. Last week, NYSE Euronext introduced NYSE TransactTools, a broad technology brand that integrates the newly acquired TransactTools with the SFTI network and SIAC’s Sector managed services, communications and hosting business. NYSE Group acquired TransactTools in early January.

Two disturbing reports of carelessness with customer data have surface out of JPMorgan Chase this week. The first is a video posted yesterday on YouTube which allegedly shows customers' in-tact personal financial information being fished out of garbage bags left outside of Manhattan bank branches.

New York's Attorney General Andrew Cuomo last week obtained the first settlement in court under the state's data breach notification legislation. While the punishment of the exposed company, Chicago-based claims management firm CS Stars, LLC, was relatively light, the development opens up new legal vulnerabilities for firms that do not follow proper procedure in the event of sensitive customer data exposure.

The leak potentially affected 540,000 New York consumers, according to Cuomo's office. New York law requires immediate notification in the event of a security breach involving customer data. CS Stars, complying with FBI instructions, did not announce the breach until 2 weeks after discovery.

One message that rang out loud and clear from some of the compliance discussions today at the SIFMA show was: broker-dealers take outsourcing lightly at their peril. Broker-dealers retain regulatory responsibility for the functions they outsource. One of the regulators scrutinizing securities' firms outsourcing relationships is the NYSE. "There's been controversy over the rule we proposed [NYSE Rule 340]," said Grace Vogel, executive vice president, member firm regulation at NYSE Regulation. "We don't object to outsourcing. Where we see problems is when something goes wrong and a firm says, 'We're not responsible' and points to the outsourcer and says, 'go regulate them.' The outsourcer is outside of our jurisdiction. Firms should outsource functions, not responsibilities."

If your firm is a counterparty to a hedge fund, invests in or partially owns a hedge fund or places clients' money in a hedge fund, it may be somewhat accountable if the fund commits fraud, losses money or goes bankrupt. Of course, not all hedge funds are run by crooks or mismanaged, but hedge funds do have an 8.5% failure rate, and that rate is growing. In 2005, hedge funds lost $1 billion, in other words one dollar out of every thousand.

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