February 2006

VISION 2006 10 Reasons to Get to Work No one ever said life on the Street would be easy. But after years of trying to do more with less, financial firms began to renew their focus on growth in 2005, and 2006 promises even more opportunity for innovative players. WS&T presents 10 challenges that will shape CIO's agendas in the coming year. Trading Gets Exotic As the search for higher returns and diversification has sparked a surge in alternative investments, firms are working to establish a technology infrastructure capable of managing an acceptable balance between risk and reward. Holding the Spending Line Finding ways to control compliance costs has become a high priority for Wall Street CIOs as they realize that more IT dollars diverted toward compliance means fewer IT dollars devoted to clients' needs and company growth. Fighting ID Theft and Fraud As criminals dream up new and more-sophisticated schemes to steal and profit from personal data, consumer confidence in e-commerce, including online financial services, is taking a hit. Be prepared: Online users expect the financial industry to take action. A New View of Risk IT security historically was a low priority. Only now are firms approaching the risk associated with their technology infrastructures as a business-critical initiative with substantial bottom-line implications and devoting greater resources to their maintenance. The Buy Side Buys In In 2006, it will be impossible to ignore the enhanced productivity gained from algorithmic trading systems. As the buy side takes control of its own trading processes, automated trading frees up humans to focus on more-complex trading decisions. Turning the Tide As ECNs and other alternative trading systems have emerged, fragmentation in the capital markets has increased. But with the acquisitions of Archipelago by the New York Stock Exchange and of the Brut and INET ECNs by Nasdaq, the tide may be turning. Hard Times for Soft Dollars Soft dollars are a means of paying brokerage firms for their services through trade commission revenue. To cover fees for research, for example, buy-side firms direct order flow to the sell-side service provider, which charges inflated trade commissions. Retirement Boom As baby boomers age, 76 million Americans will reach retirement in the next two decades. Many will move their money from institutional retirement investment tools into retail accounts, signaling a shift in the financial advice and asset management industry. Flush Firms Eye Acquisitions After posting record profits in 2005, many financial services firms are looking to acquire smaller players with unique business lines and/or financial products, or to bolster their technology. Consequently, consolidation may reach record levels in 2006. PERSPECTIVES Data: The Final Frontier It's like that adage, "Water, water everywhere but not a drop to drink" -- we are surrounded by data, but the overwhelming volume, speed and complexity of the data make it impossible to understand what it all means. PEOPLE & CAREERS Temple Joins Bank of New York Rausch Leaves Calyon, Returns to TT Rosenblatt Adds Burrill Keeping Tabs

FROM THE EDITOR The 'Educated' Guess This is the time of year when predictions of all kinds are issued. IN THEIR OWN WORDS In Their Own Words As the securities and investments industry prepares for the implementation of possibly the most dramatic series of changes we will see in our lifetime -- namely Reg NMS and the NYSE's plan to implement a hybrid exchange model -- no number of editorials or articles seems to be able to do the topics justice. In the following pages, you will find a few more viewpoints and prognostications from five of your peers. Don't Reinvent the Wheel Philippe Bibi, senior managing director and CTO at Boston-based Putnam Investments, plans to focus on adding business value in 2006 (instead of spending a lot of time focused solely on regulatory compliance) by developing technology that can automate derivatives transactions and replacing parts of Putnam's legacy systems with off-the-shelf solutions. Reg NMS: Hurry Up and Wait Currently, financial services companies are scrambling to ready systems and processes for Reg NMS and the NYSE's planned hybrid exchange structure. However, Joe Gawronski, COO at Rosenblatt Securities, says that while it's important to be prepared, don't be surprised if implementation of both Reg NMS and the NYSE's hybrid model are delayed. Raising the Security Bar According to Richard Rzasa, CIO at TD Waterhouse, in 2006, executives in the financial services industry have a decision to make: either tighten their own security, work closely with lawmakers and educate the public to increase online security, or risk having consumers move away from using the Internet for financial transactions and self-service. Firms Eye Tech Acquisitions Bolstered by record profits in 2005, the securities industry may see an increase in consolidation activity in 2006, according to Robert Hegarty, managing director in TowerGroup's securities and investments practice. Both smaller financial firms and innovative industry-specific technology providers will be on the menu for many bulge-bracket firms in the coming year, he says. Yearning for the Long View While Wall Street lives by the quarterly earnings call, executives are starving for a long-term vision, according to the soon-to-be-released "Financial Markets 2015" report (available April 1) from the IBM Institute for Business Value. Daniel Latimore, executive director, and Suzanne Dence, a senior consultant at the institute, share some of the report's findings with WS&T. UP FRONT A Little Respect IT professionals are looking to flex their business muscles to gain the recognition they feel they deserve, according to a survey by global recruiting firm Harvey Nash. What's Your IQ? A majority of executive decision makers do not get the operating and financial performance information they need to analyze and manage business procedures effectively, according to a recent study conducted by CFO Research Services for Deloitte Consulting. A Matter of Chance Despite increased awareness of the threat of fraud and businesses' confidence in risk controls, more financial wrongdoing within businesses is uncovered by accident than by internal controls, according to a survey conducted by PricewaterhouseCoopers. Table Set for Soft Dollar Software Growth New regulations in the United States and Europe are leading to heightened awareness of the largely unexplored commission-management software industry -- a market primed for major growth, according to research and advisory firm Financial Insights. Get Yer Red-Hot Derivatives Here! The derivatives market is heating up, and IT spending on derivatives management will experience a steady increase over the next four years, according to a new study from Aite Group, "Derivatives Management: Ready for Prime Time?" INDUSTRY VOICE Developments on the Horizon Aging baby boomers, SOA, DMA, Reg NMS, algorithmic trading, Web-based automation and finding liquidity are a few trends to watch in 2006. PRODUCT WATCH DTN Goes Mobile Managing BCP Performance Stratacache Scales Data Delivery