Investor Brain

Wednesday, June 07, 2006

T+0 and Real Time Everything by 2015?

By the year 2015, the widespread implementation of straight-through processing is expected to happen, including T+0 settlement, according to a new worldwide research study issued today by BearingPoint, Inc., a McLean, VA-based management and technology consulting firm. 

I’m not sure it will take that long. 

According to the study, the stock exchange consolidation happening today – as demonstrated by groundbreaking developments such as the NYSE-Euronext merger proposal – is a precursor to the migration by exchanges into the traditional world of investment banking, driven by the exchanges’ need as public companies to identify avenues for continued growth.  The study is entitled, “Shifting From Defense to Offense: A Model for the 21st Century Capital Markets Firm,” and it was based on surveys of top executives from leading capital market companies to find out how these firms are already transitioning their operations in preparation for the challenges of the next decade.

The study also found that capital markets firms will need to establish an organizational structure that maps to their clients’ “investment DNAâ€? with a centralized view of client data across all business lines and products. This will allow banks to provide a consolidated risk and finance profile of each client, as well as the information needed to design custom products for each client’s portfolio.  This “investment DNA” idea is an outgrowth of the ongoing customization and personalization we’ve been seeing in the online brokerage and banking industries over the last five years. 

E*Trade takes the idea of an investor’s “DNA” to the max, but they use it primarily to cross-sell other products that they offer.  It’s hard to move from one part of the E*Trade site to another without being offered mortgages, credit cards, and shopping opportunities.  I’ve gotten complaints from investors who were recently Borged into the E*Trade system due to the BrownCo takeover about this incessant cross-selling.  “Can I turn it off somehow?” asks one new E*Trader. 

The BearingPoint study, which you can read by clicking here, also cites the key technology issues that should be considered as the capital markets industry looks to the future, including:

· The role of emerging markets:  Emerging markets will represent an important growth engine for the global capital markets industry, as their upper and middle class grows.

· 21st Century data infrastructure:  By 2015, all forms of data, including unstructured data like email and messages, will need to be stored for internal and external audiences.

· Strategic risk management: Impending market restructuring legislation is causing the leading capital markets firms to take a different approach to managing risk.

· Enterprise client management:  Middle- and back-office functions will be reconfigured into massive processing utilities, leaving capital markets firms focused on the front end.

“We have seen the list of the top ten investment banks and brokerages change every ten years, with new players breaking in and others fading away through consolidation and competition,â€? said Peter Horowitz, managing director of BearingPoint Financial Services and global markets lead.  “We can expect to see an even more dynamic shift over the next ten years as exchanges, which are searching for profits and growth more aggressively than ever before, muscle their way onto the playing field.  As a result, sell-side firms must begin preparing immediately to use technology to both capitalize on alternative revenue opportunities and identify new ones.â€? 

I believe that the biggest drag on this push to real-time everything are the legacy systems still in use by many of the larger banks and brokerages.  If you know where to look, you can see the transition from one system to another as you move around a website. 

Some brokerage executives have told me that upgrading their hardware is difficult with the constant regulatory changes.  They fear switching to a new system only to have to deal with another set of regulations that would render it unusable, or immediately obsolete. 

I think that waiting until the regulatory landscape levels out is not a wise business decision. 

Wednesday, May 17, 2006

Greetings, Apex Live Attendees

This morning, I gave the welcoming keynote talk at the TD Ameritrade Apex Live event held in San Francisco, California.  For those attendees who wanted some of the links I mentioned, I’ve prepared this entry. 

Regarding closed-end funds, please read my entry from July 18, 2005, entitled “Closing In on Closed-Ends.” I abbreviated the content of that column considerably, and all the links I mentioned in the talk are included, plus several others. 

I’ve reviewed quite a few currency trading sites in the last year.  Here are a few columns that include those reviews.  Click on the title to read the story. 

Currencies, Anyone? (April 24, 2006)
Not-So-Foreign Exchange (January 9, 2006)
Day-Trading Currencies, 24/7 (August 1, 2005)

Regarding exchange-traded funds as a way to provide international diversification, check out these columns:

Online Hand-Holding (October 10, 2005) (Includes a discussion of Ameritrade’s Amerivest product)
Over There, Online (June 20, 2005)

It was exciting for me to see so many people who are interested in becoming better-educated investors.  This site will be developing over the next few months—be sure to come back and visit. 

Sunday, May 07, 2006

A Policy Change at Greenlightstocks.com

My current Barron’s column, Automated Forecasts (link requires a Barron’s Online account), features a site called Greenlightstocks.com, which I found interesting with a few caveats.  When I wrote the piece, the publisher offered a 30-day trial period. 

But between Tuesday, when we fact-checked, and Saturday, when the article hit print, Greenlightstocks.com changed their free trial policy, much to my dismay.

Several readers wrote me on Saturday with emails similar to this one:

“Theresa W. Carey’s article on Greenlight Stocks’ algorithm that uses statistical and mathematical methods to forecast prices for North American stocks has an error in it.  The trial period is not 30 days, as stated in the article, but rather for 7 days for 3 stocks.  This certainly made me change my mind quickly about trying this service, as I am sure others have decided to do also. “

I sent a note to the site publisher, Gideon Vigderhous, Ph.D, who responded with this explanation:

“Hello Theresa:
I do apologize for the complaints you are getting since we changed the 30 day free-trial to 1 week.  The reason we did that is because many people used the free-trial and then tried to get an additional free-trial period using a different e-mail address.  At the time we were giving the 30 day trial, we had a different fee schedule (we were charging as much as $29.95 per month).  Since we lowered our subscription to $9.95 per month, we also lowered the time for the free trial.  Nevertheless, we will gladly give anyone who complains the 30 day free-trial.  Please direct them to us and we will gladly extend their free trial time.

Again, we apologize for any inconvenience this may have caused and thank you for your efforts on our behalf.

Gideon Vigderhous, Ph.D”

One of the reasons I enjoy writing for Barron’s is the short lead time before a piece hits print.  Back when I primarily wrote for monthlies with long lead times, there were often many changes between the time an article was filed and when it was finally printed.  Fielding those complaints—“Your article is way off base!  The price is $49.95, not $34.95!” and so on was annoying.  I can’t think of any other instance in the 11-plus years I’ve been writing for Barron’s when there was a change of this magnitude between the time a story was filed and when it ran. 

Sure, a month from publication, there are often changes.  But in 5 days?  When the site publisher knew I would be covering his technology?  That’s just bad marketing on the part of Greenlightstocks. 

Grr.