In the few seconds that it takes for a transaction to get executed at the New York Board of Trade, a commodity price can change, but traders haven't always known right away whether they made or lost money on the trade. Until recently, it could take as long as two hours to get a preliminary confirmation that a trade was completed at a given price and even longer before the final outcome was verified.
That lag largely disappeared earlier this fall, when the Board of Trade switched from end-of-day batch processing to a new way of linking the systems that are involved in processing trades, cutting reporting times to 30 minutes. To do it, the Board of Trade created a services-oriented architecture that facilitates data sharing among the many systems involved in completing a transaction, including its four trading systems, back-end accounting servers, a clearinghouse system and the computers of 39 trading partners. "A lot of pieces in each system were tied together," says David Sternberg, director of clearinghouse systems at the New York Board of Trade.
Services-oriented architectures (SOAs) promise IT efficiency and flexibility in the form of reusable software "services." Investment industry companies, with their demands for timely information and close connections to customers and partners, are among the early and most successful adopters of SOAs. The concept, a few years in the making, is hitting the mainstream now that commercial support for Web services is widespread. Yet the approach requires planning and know-how: Services-oriented architectures are custom-built, not bought. IT departments assemble them using a combination of development tools, XML-messaging middleware, other software standards and management products. In the process, older applications may need to be reformatted for the services model.
Stamford, Conn.-based Citigroup Asset Management, the institutional and managed-account investment arm of Citicorp, recently implemented a services-oriented architecture to hasten its handling of repurchase agreements, or repos. The financial firm processes only 200 repos a day, but they're worth about $5 billion. The trades must be completed by 3 p.m. EST or, "You miss the market, the customer loses the interest [on the investment] and Citigroup loses face with its client," says Sayee Bapatla, director of technology planning at Citigroup Asset Management.
Until two months ago, Citigroup employees manually entered repurchase-agreement orders into legacy systems with "business logic all over the place," Bapatla says. Completing an order was "a very convoluted process, touching 80 to 90 systems" - including IBM mainframes, Unix and Windows servers - using middleware from IBM, SeeBeyond and Tibco Software. A weakness in the process was the transfer of order files via the File Transfer Protocol, since that lacked the asynchronous nature of Citigroup's new approach. If a file didn't transfer successfully by FTP, Citigroup repo managers had little means of knowing and risked missing a trade. Now, however, an XML-based message is transferred between systems and receipt is automatically confirmed; if not, a request that the message be resent is triggered to the sender.
"It's completely eradicated the old way of doing things," Bapatla says. In addition, business-process monitoring software from CommerceQuest (Tampa, Fla.) audits each business process along the way to spot any disruptions. A real-time message audit eliminates the prospect that a failed trade will lose revenue for a client by missing the deadline. The services-oriented architecture "is so key," Bapatla says.
The investment industry's dependence on speed, along with the high stakes that can be at risk in any given transaction, is making it a prime candidate for adoption of services-oriented architecture.