At this year's European Trading Architecture Summit (ETAS), sell-side CIOs discussed the need to cut costs and establish new ways of delivering IT support to their clients. Anthony wonders whether buy-siders should be concerned.
It started simply enough, when Pierre Dulon was lamenting that there were still great pressures being exerted on IT departments to cut costs.
The CIO of Crédit Agricole Corporate and Investment Bank (CA CIB) said that as a result, IT teams are being forced to reconsider their roles within banks, my colleague James Rundle reported from London as he covered Dulon's keynote address at this year's Summit.
"IT expense has to decrease, sharply," Dulon explained to the attendees. "It can't be immune to a decrease in general expenses, and we have to make do with less money."
Doing more with less. It's a line almost perfectly plucked from the fifth season of HBO's series The Wire. In the face of higher volumes and flat budgets, service ─ which now has to follow the sun as the buy side expands into new asset classes and geographies to find alpha ─ cannot slip.
"You can't lower your IT investment, either, because business requirements are so high ─ just look at the electronic trading sphere, where you need to invest in algorithms, in market access, and in new markets," he says. "You need to commit money just to be in the market,"
This has led Dulan to reexamine the way that he has formed his IT team at CA CIB, according to Waters' editor, Victor Anderson:
"If you consider IT not as a support function, but as a company within the company, then you end up with the idea that we should have different products, we should have different processes, we should have to address different segments and customers, and that's the way any company is operated," Dulon explained.
According to Dulon, 'commando-style' project teams are better able to act quickly and specifically to end-users' demands ─ especially those emanating from the front-office that are responsible for the bulk of any financial institution's day-to-day market-related activities. There, for example, a team might be required to support pricing functions through spreadsheets, although, Dulon adds, the concept can be rolled out to other areas of the business than is ordinarily considered the case, too. Speed is of the essence here, as opposed to reliability, which, according to Dulon, may sometimes need to be sacrificed.
A Mounting Concern?
After the keynote, a panel consisting of C-level technologists from HSBC, UBS Investment Bank, Saxo Bank and Prologue Capital, echoed Dulon's idea of "Commando-style" project teams─if in their own, firm-specific ways.
I've heard other buy-side CIOs/CTOs discuss the idea of "Commando" or SWAT teams to handle pressing problems, while leaving the rest of the team to handle broader infrastructure projects. And it has been circulating in major sell-side parlance for years, if not decades. Fact is, though, that most buy-side firms don't have the staff to have a whole separate entity that puts out fires quickly.
Also, while Dulon says that speed is of the essence, not reliability, I'm not so sure that hedge funds and asset managers can take on that mindset when they are dealing with IT teams in the dozens ─ if they're lucky ─ and not the hundreds and thousands, like major investment banks.
Bill Murphy, the CTO of one buy side that does have those hundreds, Blackstone Group, made the point in a Waters profile earlier this year that he prefers to take the long view, rather than short fix, for any issue crossing his desk ─ and has organized his developers to match that priority. "Where our design process was, we needed to back up three steps. Before, when a request would come in, IT would run around, work really hard, but not assess why the need was there to begin with," he said.
The other concerning element, of course, is that the financial industry as a whole has been doing more with less since 2008 and smaller entities like hedge funds are increasingly relying on third-party vendors, brokers, and fund administrators to help improve their IT processes and platforms. Frankly, the buy side needs the sell side to be sharp and precise, but it sounds like organizational structures are still being brought into question, even as the overall market continues to improve.
Maybe I'm reading too much into this. Have an opinion? Give me a call (646-490-3973) or email me ([email protected]).
Bill Murphy, CTO of Blackstone, once again joins the podcast to discuss the private equity firm's new offices, designed to house its innovations team.Subscribe to Weekly Wrap emails