Risk Management

04:55 PM
Larry Tabb
Larry Tabb
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A Decade of Destruction and Rebirth

The past decade has been tough, but we need to be optimistic and view it for the success it has brought and the opportunity it will bring.

As I write this, the market is in the midst of a month-long U.S. equity slide that has brought the S&P 500 down more than 17 percent with no floor in sight. And while Standard and Poor's just downgraded U.S. debt, leaving the country in a political bind, Greece, Portugal, Ireland, Spain and Italy are looking like a financial train wreck, causing experts to wonder whether the euro will survive.

While the short term has been turbulent, the longer perspective hasn't been much kinder. In fact, over the past decade the market (based on the S&P 500) has done virtually nothing, moving from about 1,200 in August 2001 to just over 1,100 in mid-August 2011. That's right -- over the past 10 years the market has gone down nearly 100 S&P points. While the decade hasn't been all bad, if you draw straight lines between most plot points, the vectors wouldn't be going in the right direction.

In the past 10 years we have seen the dot-com crash, the fall of the Twin Towers, the Credit Crisis, the Flash Crash and now the sovereign debt debacle. These disasters have systemically wiped out trust in our corporations and banks, as well as in our security, our homes, our market, our retirement and now, our government. What's left? Civil unrest? Oh wait, we have that, too -- in London.

Wake-Up Call

While this physical and financial devastation has pummeled our industry, it also has signaled a wake-up call. Over the past decade, financial institution operating models have radically changed. Organizations have become more operationally efficient and expanded globally, and the level of automation has been relentless. From mostly developing asset class and geographically siloed enterprise processing and trading solutions, institutions have migrated toward a customer-centric, distribution-focused philosophy, attempting to put as much technology within clients' grasps as possible.

Firms have moved from developing plain marketing and informational websites to developing and hosting some of the most sophisticated client-facing, trading and risk management solutions on the planet. And while regulation is threatening to realign business models again, technology will continue to put more products and services in the hands of end users -- from the drive to develop tablet-style trading tools for retail investors, to the push to develop an emerging wealth platform for scaling customized managed portfolios for the masses; from cloud infrastructures restructuring how we think about infrastructure, to migrating OTC derivatives to exchanges/SEFs, and developing institutional-class aggregation and algorithms to bridge the heterogeneous execution and clearing infrastructure that is developing as the industry adjusts under the new Dodd-Frank regime.

Our industry also has become more global and inclusive. When I entered the market, it was much more likely that I would be sitting next to a Robert than a Rajeev. Today, not only is our U.S. workforce more diverse, but our operations, customers and business models are truly global -- trading books follow the sun, and our operations are scattered not only from New York to London to Japan, but also to countries that would have arrested us on disembarkation a decade or two ago.

But while we concede that the past decade has been tough, we also need to be strong; we need to be optimistic and view the past decade for the success it has brought and the opportunity it will bring. And just as the Twin Towers are being resurrected, so too will we be, and out of the rubble will come that phoenix of opportunity that has defined our industry for generations and will continue to define it into the future.


I would like to dedicate this column to the wonderful folks whom I was lucky enough to call my friends that fateful day a decade ago:

Aaron Dack (Encompys), Doug Gardner (eSpeed/Cantor Fitzgerald), Eric Lehrfeld (RandomWalk), Joseph Mathai (Cambridge Technology Partners), Bob McIlvaine (Merrill Lynch), Raj Mirpuri (DataSynapse), Brian Murphy (eSpeed/Cantor Fitzgerald), Michael Packer (Merrill Lynch), David Rivers (RiskWaters), Scott Saber (UBS), Barbara Shaw (HP), Hagay Shefi (Gold Tier/SunGard), Mitzi Sperando (Encompys), Steve Tompsett (Instinet), and Fred Varacchi (eSpeed/Cantor Fitzgerald).

Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio
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