When it comes to instant messaging, Charles Bennett has his doubts.
As vice president of compliance at broker-dealer Hornor, Townsend & Kent, it's Bennett's job to make sure his firm complies with SEC and NASD rules governing electronic communications. Although HTK recently deployed technology to manage e-mails across its multiple locations, when it came to instant messaging, the firm took a pass.
That's because people in HTK's technology group have concerns about rolling out the medium to its representatives and their clients, Bennett says.
HTK's main issue at the time of the decision, was security and the ability to properly capture and monitor IM traffic from multiple vendors. Bennett says HTK's technology department was worried that allowing external communications via the firm's servers would compromise the safety and integrity of its systems. Allowing clients to "pierce our firewall is not something we were prepared to do."
In addition, HTK decided the state-of-the-art technology that would ensure it could capture the messages accurately, wasnot yet available. The broker-dealer has a number of brokers working from remote offices, which Bennett believed made the proposition more complicated.
So for now, IM is a no go at HTK, but it's something that Bennett will continue to watch closely. He's not alone. Both sell-side and buy-side firms are grappling with instant messaging and if they're not, chances are they will be forced to deal with it soon.
IM growth on the upswing
That's because IM is exploding and it's one of the fastest growing means of electronic communication in the corporate world. According to Celent Communications of Boston, the number of IM users will grow from around two million in 2003 to more than 3.5 million by 2006. The number of messages sent in a day will skyrocket from last year's two billion to almost 10 billion by 2006.
While only about 30 percent of firms have sanctioned the use of IM solutions, 80 percent of financial-services employees say they use IM. "All the major Wall Street firms are using IM in some part of their organization," Haney says, noting that traders were the early adopters and many firms are in the process of catching up. "I think we're passed the point of whether or not people think it's useful."
IM provides a range of benefits
One firm that is using IM internally is direct-access trader Terra Nova Trading. Terry Regas, manager of the business development group at the Chicago-based firm, is using the e/pop system from WiredRed of San Diego, Calif. Regas says, "It's used across the organization to communicate sensitive information. As a result, if something is happening in the markets or there's an event taking place that could impact the markets, the information can be disseminated quickly.
Another firm using that system is Davenport & Company, a Richmond, Va.-based broker-dealer, which has been using IM for four years. Noting that the firm uses the medium strictly internally, Mike Eckler, vice president of information services, says, "We have it set up so the IT department can IM the entire company in seconds." It is used to notify personnel when an application is down or if there is a network outages. He adds that it prevents the call center from getting swamped with inquiries. Sales assistants also use it to send messages to their bosses when they are on the phone, to advise them of another call or pending meeting. As well, receptionists can use it to see who is in or out of the office.
An audit and reporting feature allows the firm to record and archive IMs to achieve compliance with U.S. securities regulators.
Lee Blackmore, director of information technology at Stifel, Nicolaus & Company, a St. Louis-based brokerage has extended IM to its traders and brokers using technology from IMLogic of Waltham, Mass.
Blackmore says the firm had to come to grips with IM because people had already been using it. So the brokerage confined usage to revenue producers such as traders and brokers.
However, Blackmore expects that will change. "What we've got to do is make sure we use it properly and give everybody what they need and make sure it doesn't become an IT and administrative nightmare."
Rolling Out IM
When it comes to adopting IM, Haney says firms have to pick an approach. He says there are three paths for adopting IM services. The first is turning to a vendor that seeks to leverage existing services. In this category he includes vendors like IMLogic and FaceTime, which provide the "tools and technology but don't get involved in the network." This category also includes firms such as Akonix and the public messenger systems. These types of vendors are building solutions and often working with the public systems, such as AOL and MSN, to help integrate different platforms into their operations. They can help firms discover rogue IM systems in their operations and centralize the management and enforcement of policies around securing and archiving IMs.
The second is what he calls the enterprise approach. Here an institution deploys its own Intranet IM solution using technology from firms like IBM, WiredRed, Jabber and OmniPod, among others. They provide a behind-the-firewall environment for controlling and managing IMs. The services are integrated into existing IT and network architectures and provide assurance such as guaranteed message delivery.
The third is what he calls gated communities, like IM services from Reuters, Thomson and Bloomberg. These systems are managed externally by the service provider and provide interconnectivity among users on the network.
IM protocols on the drawing board
Moving forward, experts say, that users can expect to see more interoperability among competing systems, but at the moment it's elusive. Haney says part of the problem is that many of the public systems have built communities around their offerings and there's no incentive for them to open the gates to others.
One of the roadblocks is that unlike e-mail, there is no protocol in place that allows different systems to speak to each other. In the case of e-mail systems, that was solved by the adoption of the Simple Mail Transfer Protocol (SMTP) protocol. However, Sanjiv Gossain, chief technology officer at IMLogic, says, "We're a long way from that" in the IM space. It's similar to cellphones, where some systems run on GMS platforms and others on CDMA.
He says in the case of instant messaging, the Internet Engineering Task Force, a standards body, is considering two protocols that would alleviate some of the interoperability issues. They include the SIP-SIMPLE (SIP for Instant Messaging and Presence Leveraging Extensions) and XMPP (Extensible Messaging and Presence Protocol).
"Eventually everyone will converge. One of the challenges is in seeing how things move forward. It takes time."
As well, the Financial Services Instant Messaging Association (FIMA) has been formed to try to deal with the interoperability stumbling block that many say is holding back full-scale adoption of IM in the industry.
Haney says whichever route a firm chooses when selecting an IM architecture, there are some key things they need to consider. At a minimum the architecture should include an authorization or authentication system, monitoring and filtering, logging, auditing, indexing, storage and retrieval, encryption, virus protection and non-compliance routing. There's a broad range of offerings, each of which has its own approach to complying with regulators.
At the moment, IM is in its infancy and Haney says the "problem is that many people don't know how IM is going to be used in the future." As more users come on line its popularity will grow and new uses will find for IM. In fact, experts predict that one of the key drivers will be when software developers start embedding IM into their applications. For example, trading engines and order and execution systems could start making IM part of their offerings so that way when a financial instrument is offered, the information in the IM can simply be transferred to the OMS and executed when a trader or sales rep gets a buy or sell order from a counter-party.
As for the future, IM is quickly becoming part of the landscape and firms will have to address it, Jonathan Christensen, CTO at IM vendor FaceTime Communications, warns. "IM is the fastest growing communication medium in history, faster than cellphones, faster than e-mail and faster than any other form of communication before it. It's an extremely effective business tool and people are starting to realize that."