Greg Johnson, senior vice president of marketing at middleware provider Netik, says that in the past, financial institutions have had the ""tendency to think in silos. People think the front, middle and back office. You can't afford to do that anymore. You have to think horizontally across the plane. That's why middleware is going to be very important in pulling these things together.""While middleware covers a broad range of technology, think of it basically as air traffic control. It sits between the front office and client applications and the back office and the network and routes and reformats information as it flows into, through and out of the organization. This is particularly important in the trading arena, which is fraught with different messaging standards, such as FIX and those endorsed by SWIFT & ISITC. What middleware does is decipher messages, respond to them and change them into the appropriate format for sending elsewhere.
Shahrawat says there are four categories of middleware: messaging middleware, object request brokers, remote procedure calls and transaction processing monitors.
Messaging middleware is the most common in the financial services industry. It contains the transport layer for connecting applications and carrying messages. Object request brokers (ORBs) are a higher level of sophistication. ORBs manage the interaction between distributed-software components across the network, connecting customers and accounts to transactions.
Remote procedure calls is a type of middleware that usually operates through requests and replies and will block sending information until it receives the appropriate reply. RPCs are being used less by financial services. Finally, transaction processing monitors facilitate process and transaction management and client-server management.
In its report, the SIA defines the 10 building blocks necessary to facilitate T+1 in the industry. The SIA report notes that ""broker-dealers will need to develop seamless interfaces between front-office order execution and back-office processing and settlement systems. Asset managers and custodians will need to automate the allocation and settlement authorization processes."" That means ensuring communications are carried out using standardized methods and protocols, something that's currently elusive in the industry. For example, the report, completed last July, notes that communications to custodians vary widely, with 27 percent submitting trade notices using SWIFT, 26 percent through proprietary connections and 28 percent via paper and fax and the balance through other means. Allocations are also communicated using different standards with 26 percent submitted via fax and paper and 20 percent orally communicated.
In fact, lack of communication protocols and standards was cited by 38 percent of institutional broker-dealers and 47 percent of asset managers as an impediment to achieving T+1, while 25 percent of institutional broker-dealers, 43 percent of retail broker-dealers and 40 percent of asset mangers cited the inability to undertake front-to-back STP and real-time automation as a major problem. Part of that can be attributed to the continued use of legacy systems within financial institutions.
Mike Trapani, marketing manager for SunGard Business Integration, says that's where middleware comes in. ""People aren't going to throw away old systems. They have to implement middleware somewhere.""
The number of vendors in the middleware space continues to grow. There have been recent name changes among some vendors and others have been scooped up by larger companies, such as Sybase's acquisition of New Era of Networks (NEON). Sybase's suite of products is growing to meet the integration needs because there's no single solution, merely a set of solutions.
When shopping for a middleware provider there are a number of things to look for. Kiger, of BEA, says ""open standards are absolutely crucial."" Open standards provide financial institutions with ""investment protection"" and allow you to build applications that run on most platforms. It can also be a recruiting tool, as there is a larger talent pool to draw on when you use open standards.
Netik's Johnson says you should also look for vendors who can help track the trade from the time the order is placed through to settlement and reconciliation and matching. Moreover, he says, the vendor should be familiar with the Global Straight Through Processing Association's T+1 trading model and the Thomson/DTCC proposal. ""If people can't connect to either one or both of those then there's going to be problems.""
Kathy Ball-Toncic, vice president of capital markets for Financial Fusion says financial institutions also need to consider the ""financial resilience"" of the vendor and the likelihood it will be in business by the time T+1 comes to fruition. Other things to consider: scalability, security, speed of implementation, flexibility and the ability to handle different data formats in a global implementation. The systems don't come cheap, with most starting in the low six figures for an implementation, running up to the seven figures for larger firms. While the list of middleware vendors fluctuates, here are 10 companies that serve the financial services industry.
Based in Fairfax, Va., WebMethods has offices throughout the U.S., Europe and North America. With more than 550 customers globally, WebMethods focuses on the financial services industry providing business integration solutions to automate businesses and is in the process of bringing to market a SWIFT solution.
Clients: Citibank, Fidelity Investments, SecureTrade
Strategic Partners: Deloitte Consulting, Ariba, Commerce One, EDS, Siebel Systems
Key Product: WebMethods Enterprise, WebMethods B2Bi WebMethods Enterprise is for integration within the organization or behind the firewall, while WebMethods B2B is intended for integration between two trading partners across the firewall. Provides seamless integration of business processes linking ERP, financial, customer relationship management and mainframe systems. Expects to support GSTPA and Thomson/DTCC solutions in the future.
Quote: ""Our real focus has been on STP among global 2000 treasury departments, fund managers and the broker-dealer community. We also heavily target these new financial exchanges coming out for the OTC products as well as interconnection for broker-dealers.""--Ian Warford, director of global financial markets
This European firm, which started operating here last June, expects 60 percent of its income to come from North America by the end of this year. It focuses solely on providing financial institutions with STP solutions.
Clients: Citibank, Swiss American Securities, Deutsche Bank
Strategic Partners: Microsoft, Compaq, Hatcher Associates Inc.
Key Product: xNetik
With more than 250 financial institutions as clients, Netik deploys a plug-and-play approach to STP, which allows for faster implementations. Its suite of solutions consists of seven products, including xNetik Interchange, which facilitates the ability of financial institutions to speak to each other electronically. xNetik allows a single point of access and eliminates the need to rekey information.
Quote: ""What we really provide is STP solutions built around a core middleware product, xNetik Interchange. It provides a basic integration framework for pulling together all the financial institution's back-office legacy-type systems.""--Greg Johnson, senior vice president marketing