REDMOND, Wash., Nov. 4, 2002 — Transformed in recent years by consolidation, the financial-markets sector now faces technology-driven change.
The ultimate goal is straight through processing (STP): replacing the traditional phone and fax confirmations with a completely automated loop, from pre-trade communication and deal capture through to clearing and settlement.
The industry has much to do to achieve STP. Hard-hit by the current downturn, financial institutions must adopt new XML standards that are replacing legacy communication protocols, while seamlessly integrating core trading processes with supporting systems such as accounting and risk management. New software systems must be capable of adapting to future developments in still-emerging messaging and data standards.
To help financial institutions meet these stringent requirements, Microsoft is launching BizTalk Accelerator for Financial Services, the latest vertical industry-specific flavor of the company’s established BizTalk integration engine.
For insight into the likely impact, Presspass talked to Kenny McBride , Microsoft’s global industry manager for securities and capital markets; and Derek LaSalle , lead program manager for Microsoft BizTalk Accelerator for Financial Services and E-Business Servers.
McBride has over 18 years of financial markets experience. A highly regarded market maker, he worked for various global institutions, including National Westminster Bank in London, identifying fundamental business and technological changes affecting the global markets. He joined Microsoft in January 2002.
LaSalle first worked at Microsoft supporting database products in 1993. He then spent four years in the financial enterprise world, first as a developer and architect at UBS, then as a systems officer for State Street Bank’s Global Advisors Asset Management organization. He rejoined Microsoft in 1998, serving as the lead program manager of the BizTalk Server development team.
PressPass: What is the BizTalk Accelerator for Financial Services and who is it for?
McBride: After years of developing applications for the capital markets that didn’t communicate easily with one another, financial institutions now want connectivity to improve trade cycle efficiencies. They need a lingua franca between the systems and parties to financial transactions. BizTalk Accelerator for Financial Services is a tool that makes it easier for systems to hook up and communicate, using XML as the lingua franca.
LaSalle: The Accelerator adds specific vertical support for financial services to BizTalk’s generic business application integration middleware. The result is financial middleware that understands financial data formats and the flows of data in the capital markets and banking.
With this infrastructure in place, financial apps — payment, settlement, portfolio management, or trading applications — don’t have to know of one another’s existence. Nor do they have to understand how to route messages to other apps or which communication protocols are appropriate for the counterparties to a specific transaction. The applications generate messages and the financial middleware gets them where they need to go.
This enables both EAI (enterprise application integration) — and B2B trading-partner integration. You treat either an internal application or a transactional counterparty the same: an entity on the other side of the BizTalk server.
The end customers are financial institutions: asset managers, brokerage firms, exchanges, and also corporations that need to automate payment processing with their financial institutions. We’re also building a federation of ISV partner solutions. In the past, ISVs developed their own middleware infrastructure and tools and then built their apps on top. We’re now providing, at commodity pricing, a common and transparent underlying middleware foundation for these partners and customers alike to build on.
PressPass: Integration sounds technically rational. What business benefits does the technology offer the major financial institutions?
McBride: Within the financial sector, technology is expensive to develop, deploy, maintain and support. Every time you put an app in an investment-banking environment, you have to write specific code to cover a whole range of public and proprietary protocols and standards. BizTalk Accelerator for Financial Services is intended to slash the cost and time required to achieve that integration and connectivity. Some 40 to 50 percent of the basic grunt work required to create financial services applications now comes built into BizTalk.
The big financial institutions — such as Bear Stearns, Citibank, HSBC, Lehman Brothers, Merrill Lynch, Morgan Stanley and UBS — have huge development shops. The BizTalk Accelerator allows their programmers to build applications with built-in connectivity to other applications while providing a framework to support current and future standard financial messaging protocols, such as FIX for equities pre-trade and trade communication and SWIFT for post-trade instructions. It is one of the first products to come to market that connects the whole financial market community without adding substantially to the underlying cost. This is one of the first commoditized solutions.
In addition, the Accelerator is driven by annotated schemas, which makes the infrastructure very flexible. Since it’s not hard-coded to specific protocols, it can be reconfigured without writing code. So an organization can modify its business processes relatively easily. It provides that business agility.
More broadly, by creating automatic connectivity, the BizTalk Accelerator moves systems closer to straight through processing (STP). Most of the financial-market world is shifting toward making money on a commoditized basis, that is, charging commissions based on transaction fees or flow size. Institutions want to fully automate the trading process and offer clients STP access to prices. That will increase the number of transactions going through their environments so they can generate more revenue.
LaSalle: BizTalk Accelerator is also intended to reduce the risk exposure that derives from the small number of mismatched trades and errors. A trading system differentiates itself not on processing of the good data, but on the handling of this bad data, the exceptions. With the Accelerator for Financial Services, we’ve extended BizTalk’s workflow component, or orchestration, to facilitate processes such as custom validation of messages at the business logic level. This enables creation of an exception-handling process without writing a lot of code. This framework enables the development of message repair applications allowing users to automate the handling of the more common exceptions.
Presspass: And what’s in it for the ISVs?
McBride: Vendors that create specialist applications for the financial marketplace can use BizTalk Accelerator for Financial Services as the foundation for their solutions with the confidence that it will connect into banking and securities environments. We’re looking to align a lot of ISVs into a federation that will handle the full cycle of capital markets, creating plug-and-play solutions and applications. We’re moving the value chain up. When you get to the core apps of capital markets — that is, pre-trade, execution, and post-trade solutions — if everything is standards- based, with a BizTalk environment, it’s going to be very straightforward for a financial institution to select an ISV partnered with Microsoft to plug-and-play.
LaSalle: There is already a great deal of interest among ISVs. Capco’s STP Bridge takes the Accelerator and adds the value-add services you need to build a complete trading solution. SIA [Societ Interbancaria per l’Automazione], which operates the leading Italian payments processing network, is providing a BizTalk Accelerator-based solution to the members of the European Banking Association. Firestar Software offers a set of tools that simplifies message-to-database mapping. Solution Forge provides a FIX engine. Macgregor provides an order management system for equities.
Presspass: What makes such integration technology particularly relevant now?
LaSalle: An immediate driver is the Nov. 16 deadline for financial institutions to convert one key messaging protocol: SWIFT, the industry-owned, worldwide cooperative that supplies secure messaging services and interface software, has mandated a move from the old 7775 to the new 15022 standard. Also, SWIFT is pushing traffic toward its new IP network. Many institutions are not ready to do that migration. They’ve looked at their legacy systems and realized that there’s no way to make that deadline. Our Accelerator can handle the translations from either the old format or the new as well as connectivity to the new SWIFT IP network. Effectively, this gives institutions time to realize the full return on their investment in the 7775 environment, or at least grants breathing space to work out how they want to proceed.
More generally, the 1999 elimination of the Glass-Steagall laws in the United States removed the barriers between insurance, banking and capital markets. Now large consolidated organizations like Citigroup and others need the ability to have a single view of a customer’s transactions and to move data across those distinct sectors. Capital markets information sent via FIX and SWIFT needs to integrate with data from another sector, such as banking with its OFX, IFX and ACH standards or insurance with requirements for ACORD and AL3 support. BizTalk allows institutions to plug in these different transports and protocols without writing a large amount of code.
Presspass: Will use of this technology extend beyond the capital markets to other areas of financial services? What’s the roadmap for the future?
LaSalle: Because this technology enables a full communication network between commercial banks and their corporate customers, it will find its way out into general corporate environments. For example, Nordea — the largest bank in the Scandinavian countries, with 1 million corporate customers — is planning to leverage this infrastructure not only internally but also on their corporate-customer side. Nordea will allow corporations access to automated payment processing.
As for future directions, the SWIFT 15022 protocol conversion is only an initial driver. BizTalk and the Accelerator for Financial Services is a commoditized, simple way of creating enterprise application integration not just for SWIFT messaging but for other established and future standards that will emerge in the future.
We’ll continue to drive more R & D into this space, adding more functionality as we go. We expect the Accelerator to evolve to incorporate industry standards as they emerge, providing financial institutions and ISVs with a future-proof infrastructure.