Q: What are some of the challenges that the industry will face in 2006?
A: One of the big topics that we are all going to face is the increased need for security. We are all aware of the [increasing number] of cases of identity theft and that phishing is rampant. It is going to be incumbent on the industry to take a leadership position -- both inside the industry as well as in the political arena -- to start pushing for tougher legislation. ... If nothing does happen [to curtail online fraud], we will see a slowdown in the use of ... e-commerce.
We also need to make the customer more aware about how to make themselves secure. I expect there will be a big push ... to ramp up information available on Web sites and through mailings to customers on how to secure home PCs.
Q: What can firms do to increase their system security?
A: For one thing, they can limit the amount of links they put in an e-mail. Any security expert will tell you that the more ... hyperlinks that you put in an e-mail to a customer, the greater the chance that the e-mail can be subverted or a substitute e-mail can be sent that looks exactly like [the original e-mail]. ... We will also see a significant increased use of two-factor authentication, although two-factor authentication only protects the consumer from logging in -- it doesn't protect the end user from any type of Trojans or spyware that is already on their machine that is capturing keystrokes and sending it back to a third party.
Q: But consumers like the convenience of links in e-mails, so they can click on a link and go directly to the site.
A: I don't deny that users and marketing departments like the links, and they are a very effective tool for customers. But if you know the e-mail comes from TD Waterhouse, you can type in www.tdwaterhouse.com and you are there. The link is nice and easy, but we have seen cases where people have sent out false e-mails pretending to be a site with a link. ... It is a balance between having too onerous security and making it too easy for the phishers.
Q: How will the NYSE's hybrid model change the industry?
A: No. 1, it is going to increase competition because the hybrid model will go head to head with the ECNs. ... This is something the NYSE needed to do at some point in its history. Now is the right time to do it, and they have an excellent platform with Archipelago.
Q: What IT challenges are associated with the move to more electronic trading?
A: It will increase the need for firms to have redundant and ... robust linkages to all of their execution partners. ... In an electronic world, when you lose the computer or you lose the link, you basically put your customer out of business.
Q: What technology could change the industry in 2006?
A: What is finally ... being embraced by more firms is the concept of software as a service. Five years ago, Web services and ASP models were all the rage, but they never took off because there were some missing components and there was always a question about security. ... We seem to have overcome that hurdle, and the providers of the services are much more robust.
To hear this interview in its entirety, go to: www.wallstreetandtech.com/podcast
Richard Rzasa, TD Waterhouse Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio