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Risk Management

01:04 PM
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BCP’s Balancing Act

Setting up a BCP plan is like buying insurance - everyone wants full coverage but not everyone can afford it.

It seems some IT projects are so critical they should be exempt from the return-on-investment analysis that is at the core of a financial institutions' budgeting process. If such a list of projects existed, somewhere near the top would have to be business-continuity planning - the complex and costly process of ensuring that no matter an event's impact on a firm, it can resume critical operations within a reasonable period of time.

But in today's economic climate and with the overspending of the dot-com era still fresh in the minds of financial executives, there are no wish lists. BCP budgets are fully vetted and often scaled down in boardrooms across Wall Street. Thus, "How much BCP is enough?" is best countered with the question, "How much do you have to spend?"

For that reason, it's up to each firm to come up with a plan. In doing so, it appears one of two approaches can be taken. Approach A sees firms carving out BCP budgets, then using that money to the best of their ability. Scenario B, alternatively, sees a BCP plan drafted that is then funded.

Recently, the New York Stock Exchange had to reverse itself when it tried scenario B but couldn't get buy-in from its memebers on the plan. The exchange, which last year announced plans to establish an active/active trading-floor arrangement (basically a second, fully operational active-trading floor) by opening a facility in Westchester, N.Y., recently revealed the plan is dead.

Though a NYSE spokeswoman said no one at the exchange was available to comment, she wrote in an e-mail to WS&T, "... the active/active trading floor ... is no longer being pursued."

At an industry conference one week later, NYSE Vice President of Trading Services Dennis Covelli responded to a WS&T question as to why the plan had been cancelled. "The cost variables of operating two floors as big as the existing floor were studied. Those costs would have to be assumed by member firms," he said. "Senior people discussed the costs and made the decision that they were prohibiting (it) because of the very high price tag."

The about-face worries some in the industry who say the NYSE is leaving all its people in one basket. Joe Anastasio, chairman of Capco North America, a financial-services consulting firm, notes the exchange has a very skilled, specialized workforce residing in one location. "I am still very concerned about the people-concentration risk with regard to some of our infrastructure and businesses - mainly, the New York Stock Exchange."

Richard Rosenblatt, a floor-trader at the NYSE and president of Richard A. Rosenblatt & Co., says the concentration of exchange personnel is something that also concerns him. However, planning business resumption for a scenario that assumes significant losses among his 28-person staff is not something he wants to contemplate.

"If half of my people were killed in an attack, I don't think I'd have any interest in going to work the next day," says Rosenblatt. However, he admits, "Operating on an ongoing basis with a third or a quarter of the staff not at this site is something that deserves consideration."

While the NYSE has changed course and moved away from the active/active model, Morgan Stanley will continue down that road as it establishes a trading floor in Westchester. Gregory Ferris, executive director and head of BCP for institutional securities, says the floor will support both active trading positions and inactive recovery seats. Though Ferris declines to go into specifics regarding the number and type of positions at the new space, he says, "It's a good balance with what's in midtown."

Ferris says a firm that decides to embrace the active/active model must be prepared to do some significant spending. "Capital investment plays a big part in something like this," says Ferris, though he declines to be more specific. "Companies that have not positioned themselves this way will need to make some investments to get into this model, and those capital investments could be significant."

The Westchester trading site - which he describes as server light, meaning the technology infrastructure is concentrated at a different location - is slated for completion in the fourth quarter and should be fully staffed sometime next year.

Morgan's two trading floors, at 745 7th Ave. and at the former Texaco headquarters in Westchester, along with its backup facilities in Jersey City and Brooklyn, fall within the range necessary to do synchronous data transfer. That means a transaction at a primary data center is replicated, or mirrored, at another location before a subsequent transaction is processed at the primary center.

Though it seems no two executives in the financial-services industry will give the same answer when asked for the distance limitations on synchronous data transfer (figures range between 30 and 100 miles), most answers average out to around 60 miles.

For some BCP planners, however, that range just isn't far enough. In fact, the first draft of an interagency white paper - originally released in September 2002 by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Securities and Exchange Commission - suggested a 200-300 mile separation between data centers.

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