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Compliance

05:32 PM
Jim Middlemiss
Jim Middlemiss
Commentary
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IT Challenge

When it comes to instant messaging, firms must grapple with the fundamental question: Do you allow the deployment of multiple platforms or limit users to only one?

The Challenge: When it comes to instant messaging, firms must grapple with the fundamental question: Do you allow the deployment of multiple platforms or limit users to only one? Gene Fredriksen, VP of information security at Raymond James, decided to allow the use of all leading platforms.

Having graduated from teens to trading floors, instant messaging has become the communication medium of choice within some areas of the financial institution. As a result, financial-services executives are realizing they need an enterprise-wide plan for managing these messages.

This is particularly critical in light of the recent clarification to SEC rule 17a-4, which states that instant messages must be archived, retrieved and surveilled like other documents that leave the firm. Allowing multiple instant-messaging platforms - whether AOL, MSN or Yahoo! - can make abiding by these regulations more difficult.

IM challenges some long-standing approaches to information technology, notes Gene Fredriksen, VP of information security at Raymond James. "The traditional IT mentality is pick a standard and then execute on that." That's fine, he says, when there are standards in place, but for IM technology it's the Wild West and resembles trading technology in the pre-FIX days.

"The people on the other end of the line have no incentive to follow my standard," says Fredriksen. So if a firm elects to go with only one available platform, say AOL, they run the risk of cutting off communications with their external-trading parties who might have opted for using Yahoo!. That, says Fredriksen, flies in the face of "providing excellent service to the company and customers."

"The facts of life are that there are always going to be multiple vendors in place," he says, noting it's unlikely one IM platform will emerge a winner. So firms must have a robust platform that can support more than one IM system, says Fredriksen.

Lee Blackmore, director of information at Stifel Nicolaus, a full-range brokerage firm based in the Midwest, has also been grappling with IM compliance.

Blackmore says employees were using a range of different IM services and the firm became concerned about complying with SEC rule 17a-4. As a result, it signed on with Waltham, Mass.-based archiving vendor, IM Logic.

Initially, Stifel Nicolaus sought to limit IM to one platform, but "revenue producers were calling up complaining" because they were shut out from communicating with some of their regular parties, he says. In the end, the firm decided to allow revenue producers - mostly institutional traders - to use a variety of platforms. "A couple of guys use multiple IMs," says Blackmore.

Beth Cannon, chief technology officer at Thomas Weisel Partners, has extended IM to all the staff that want to use it, including traders, many of whom will have multiple conversations going on across multiple networks.

"The sales guys will tell you they can get a hold of clients faster. It's faster than a phone call and faster than e-mail, which everybody gets too much of," she says, noting the firm uses technology from FaceTime to comply with the archival and retrieval regulations.

Mike Liker, chief technology officer at the Craig-Hallum Capital Group, an institutional broker in Minneapolis, also allows traders to use multiple IM platforms to communicate with counter-parties. His firm uses technology from Akonix Systems, Inc. of San Diego, Calif. to manage the IM traffic.

"We do allow AOL and Yahoo!, but have not had any call for MSN," Liker says. He estimates 99 percent of the activity is on AOL. The firm also uses an IM service from Bloomberg. "All of our guys (use it to) communicate with their counter-parties and people they trade with," he says.

That's a different tact from mutual-fund giant the Vanguard Group. John Marcante, the principal who heads up technology operations at the Valley Forge, Penn.-based firm, says his firm has standardized its e-mail and IM systems on the Lotus SameTime system.

That allows users to communicate with each other through the firm's internal networks and has helped boost productivity, says Carol Dow, a principal in the corporate technology-services department, which is responsible for the intranet and investment systems.

"We see efficiencies every day," since the system allows users in different buildings or parts of the company to communicate with one another, Dow says, noting Vanguard has more than 10,000 people working in multiple locations. "It reduces travel time and makes you feel like a small company again."

Marcante adds Vanguard has "strong IT governance" and by centralizing on one platform it eliminates the concern of "different departments putting up different platforms."

One of the problems with IM, he says is that, "It's like e-mail years ago. There isn't a standard protocol yet." As such, users can't receive messages through competing systems.

Vanguard, he says, is eyeing an expansion of its system to allow connections to external customers through its Web site. Marcante says he sees Vanguard's partners "struggling" with the lack of protocol issues when it comes to IM. "One group wants AOL. One group wants MSN or IBM's Lotus and Reuters. How do you integrate it all?"

The interoperability issue is also on Graham Lawlor's list. Lawlor, a vice president at Deutsche Bank, is co-chair of FIMA, the Financial Services Instant Messaging Association. Lawlor says the 19-member organization "was founded to promote interoperability among IM platforms."

He notes there are a range of competing IM platforms so "currently there's not much interoperability among these disparate platforms. It poses a problem for banks when they try to support and manage the software systems to ensure compliance with regulations" and is an inconvenience for sales teams or traders who must contact external counter-parties.

He says the technology exists to allow more interoperability, but the problem is as much contractual as technological. Some of the large public IM platforms have business models based on keeping their clients separate from competing networks, which is more in line with building a consumer business, rather than a corporate enterprise-wide offering. "Some of the IM networks are not willing to give up control to the client interface," Lawlor explains.

So FIMA is hoping to break down some of those barriers and, in September, was in the process of drafting a number of discussion papers, including what constitutes interoperability. Lawlor notes, "e-mail has been around a lot longer" and has dealt with similar issues. "IM is just starting to experience (the same) kind of growth (as e-mail). It's starting to become very pervasive."

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IM Upswing

According to the Radicati Group, Inc., a Palo Alto, Calif. research firm that follows instant messaging, the technology is hitting its stride. The firm projects by the end of 2003, there will be 590 million active IM accounts worldwide. By 2007, Radicati predicts, IM accounts will grow to 1.44 billion, 349 million of which will be corporate accounts.

The research firm also expects the number of messages sent per day to grow from 582 billion in 2003 to 1.38 trillion by 2007. Of that, corporate IMs will increase to 290 billion from 52 billion per day, as companies turn to instant messaging to communicate with staff and clients.

By 2007, the largest segment of IM users will be those between 20 to 49, compared to today, where the largest segment of users is 29 and under.

Only 12 percent of those surveyed cited lack of interoperability as a concern, while 12 percent cited cost. A further 10 percent listed concerns about complicated administration as a drawback to IM technology. Only 2 percent indicated IM installation was a potential problem.

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