Wall Street firms have a lot riding on Excel spreadsheets -- namely their intellectual capital and the speed of processing calculations to support trading decisions. Banks, brokerage houses and hedge funds have created entire trading applications on top of Excel -- they use it to price portfolios, analyze risk and run Monte Carlo simulations, notes Stevan Vidich, industry architect for Microsoft's capital markets group.
Beyond simple equities, firms use Excel to develop new instruments, such as callable bonds, credit derivatives and structured products. Because the spreadsheet doesn't require programming, has a familiar interface and a strong calculation engine, it's become ubiquitous among business users as well.
The problem, however, is that spreadsheets are out of control. They're big, cells can be changed without audit trails and they are being e-mailed throughout the enterprise, even across the globe, to external customers and internal associates -- thus putting substantial intellectual capital at risk. Also, as financial instruments get more complex, "There are so many variables to process that if you do it on a laptop it will take a lot of time and eat up a lot of memory," says Sang Lee, managing partner at Aite Group in Boston.
Recognizing these weaknesses, for the first time, Microsoft is making it possible to deploy spreadsheets to a server. It's called Excel Services, and it runs on Microsoft Sharepoint 2007 server. "Sharepoint allows them to maintain spreadsheets in a central server environment and lock down spreadsheets," explains Microsoft's Vidich.
Excel Services 2007 also addresses the performance flaw associated with running a spreadsheet on a PC. "When Microsoft first created Excel, I don't think they thought of it as an application to support trading applications," says Aite's Lee. "As you put the onus of processing a spreadsheet calculation to a server, it could process much quicker," he adds. "What may have taken you a whole day on your client laptop may take a few seconds [now]."
According to Microsoft's Vidich, the new Excel can harness the power of Intel and AMD dual core and quad core processors -- which was not the case in previous versions. "If you are doing Monte Carlo in Excel 2007, the processing will be roughly four times faster than the previous versions of Excel," he contends.
In addition, many users no longer need to have Excel installed on their PCs (those authoring spreadsheets still will need the software on their machines) -- they can use a Web browser to render the spreadsheet as HTML. "The key feature is that the end user never has the ability to alter or modify the spreadsheets," notes Vidich. They can view it to decipher the strategy, interact with the spreadsheet and enter their own inputs, he notes, but the underlying calculations will reside and process on the server.
This solves the headaches of compliance with Sarbanes-Oxley -- for which firms must guarantee the data going into their financial controls is accurate. "Because of compliance requirements, there is value in having models locked down and controlled centrally for formal transaction processes," says Steven Ballmer, CEO of Microsoft, in an exclusive interview with Wall Street & Technology.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio