Middleware-the technology that sits between hardware and software, holding the promise of total communication in its grasp-has been irreverently called technology's glue. This is apropos for the financial industry, where middleware got its start filling the numerous gaps in the transmitting and processing of trades. Now with the industry's quest toward straight-through processing, middleware just may be the Holy Grail.
As straight-through processing efforts take off globally, hopes are high for achieving STP, but without the help of middleware vendors, STP would only be a pipe dream. Financial services firms are scrambling to meet the T+1 goal of 2001. They are figuring out which systems they need to connect internally using middleware, which are better outsourced and how they can work with industry utilities, such as the Global Straight Through Processing Association. There are a lot of unanswered questions as to how to get there, but one thing is clear, middleware is an essential link to complete the transaction chain.
"Basically, we believe that a lot of buyside firms-investment managers, institutional clients that are managing their own money and mutual fund firms-will in all likelihood use the services of middleware vendors ...," says Robert Pierre, a v.p. in global operations at State Street Bank, and an alternate executive member of the GSTPA, one of the main STP initiatives underway.
"Middleware vendors will not only be the access providers to the TFM (transaction flow manager-the GSTPA's global trade matching solution), but also the functionality providers ...," says Pierre.
The entire approach to STP is in flux. "The whole industry is changing," says Sun Microsystem's global industry manager for securities and capital markets, Steve Katzman. Companies are reviewing which parts of STP should remain with one vendor, and which should be handled by another, he says.
Organizations are at various phases in their STP programs. J.P. Morgan began its STP effort in the early 90s, setting up separate STP initiatives for each line of business in each product group, says Mike Reilly, J.P. Morgan's chief technology officer. From the front office on, message routing forms a major part of J.P. Morgan's technology architecture, connecting these islands of business. A global transaction router is part of that architecture, based on MQSeries Messaging and other IBM middleware products, including the TXSeries.
Now that J.P. Morgan has STP end to end, Reilly is focussing on making sure that information is consistent. "There is no guarantee," he says, "that just because the trade was processed straight through that all the information necessary is available real time, end to end." Procedures are still needed to ensure data integrity through the manual steps necessary to look up and reconcile the odd transaction.
The frequent challenge with STP is that it not only involves multiple middleware vendors, but a variety of legacy systems as well. At HypoVereinsbank, in New York, David Dart, managing director and CIO, has the task of achieving STP across all of the key operating systems. That means addressing the linking of securities activities including foreign exchange, money markets and derivatives, while anticipating the possible later additions of real estate and FX options. To date the bank has completed the implementation of Reuters' FX Kondor, part of Reuters' Kondor+ global risk management system, into its existing inhouse-built risk system and its Midas back-office system.