Seeking Comparative Advantage on the West Coast

michael-shashoua-waters

New York has its share of the US technology providers serving the financial industry, and is certainly mastering co-location for its major securities exchanges. But there's something different in the Northern California air, which I discovered on a trip to San Francisco and Silicon Valley last week. Professionals there, in a region with free-flowing creativity and innovative spark, have a lot to offer, which benefits the entire US securities industry.

San Mateo, Calif.-based market data provider Xignite, for example, has developed ways for global firms to handle data across their locations worldwide, with greater sophistication and speed. Palo Alto, Calif.-based trade messaging services provider Tibco recently unveiled its Faster Than Light (FTL) messaging system that reduces transmission times by leveraging remote data memory access (RDMA), and continues to search for and develop ways to automate trade reporting needed for regulatory compliance. And network provider Reliance Globalcom Services, which has offices in San Francisco, is working on applying multicast computer networking technology to financial industry communications.

Even the banks are getting into the act. San Francisco-headquartered Wells Fargo—whose East Coast presence was bolstered by its acquisition of Wachovia— decided last year to start self-clearing its trades, in part to eliminate overlap of clearing operations. It turned to fellow San Franciscan company Calypso for support in this endeavor.

Meanwhile, a major California pension manager built a true trading desk of its own, just in the past couple years, enabling it to handle more assets and more complex investment strategies. This may be the ultimate act of West Coast operations management creativity—finding or creating comparative advantage in handling technology functions within one's own firm.

Just as Northern California's financial technology providers are taking novel approaches to innovate and better-serve the industry, so are its financial services firms. Choosing between using providers and innovating in-house requires a thorough assessment of what will yield the most comparative advantage, and it is a choice the industry should watch and evaluate.

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