Web Services in Capital Market|
by Mitali Kalita
This article tries to explore the avenues of Web
services in capital markets, makes a short journey though
the standards such as XML, SOAP and Straight-through
processing - the lingua franca of the capital markets,
lists down the benefits of each and lastly portrays the
challenges that the new technology has to crossover to make
a real impact on the capital markets.
Web services is perhaps the only technology concept that
has gathered so much of attention in recent times. With
lots of promises, Web services claims to change the way
business is conducted today. Though the evolving
integration concept has gathered so much of hype, the
financial services sector seems to be slower in adopting
the new technology.
Though the financial services sector - especially the
capital markets firms have not yet welcomed Web services,
there are speculations that firms are experimenting with
the new technology to ease up their integration, both
internal and external. In a recent report, Jim Adamczyk, an
associate with Accenture's Financial Group,
said, "Companies are definitely looking at Web services as
a standard and a tool inside the corporate firewalls."
TowerGroup ~ a top research and advisory firm on the global
financial services industry, reports that by 2005, Web
services will still represent only $8 billion of the $350
billion spent on IT by financial services institutions
worldwide. Though interest and spending on the new
integration concept will continue to grow, the Group
projects that the vision of the "networked financial
services institutions" will not be realized until the end
of this decade, at the earliest.
The surfacing of the new platform-independent, flexible
technology holds some positive signs for the capital
markets to serve as a better choice of integration concept
with more advantages than the existing practices. Web
services will make it possible for a customer to access
mutual funds, mortgages and any other related products of a
bank through a single interface and all in a single
session, which will definitely save his time and energy.
New 'connecting medium'- its promises
Integration has always held top priority in the global
capital markets scenario and these firms have been known to
implement almost every known middleware exchange technology
that has been evolved since the 1950's. The rudimentary
inter-enterprise integration means that were in vogue were
handwritten blotter tickets, individual spreadsheets, faxes
and other stovepipe systems.
Now, Web services has garnered support in this sector as it
enables, "dissemination of fast information" which is
indeed the backbone of the capital markets. Thus, the new
Serves as a cheap integration medium with complex
and expensive propriety alternatives.
Reaches out to the small and mid-sized
organization, which was left out due to cost involved in
Enterprise Application Integration (EAI).
Promises to create universal approach by
integrating applications, processes or people, irrespective
of the technologies associated with them.
Integrates incongruent applications thus connecting
organizations with their myriad partners and customers,
both internally and externally.
Reduces development and maintenance cost of
software applications; boosts application service
Promises to establish itself as the easy,
cheap 'connectivity medium' over the existing Enterprise
Application Integration (EAI) medium.
Allows securities firms to expose their
applications to institutional clients.
In a recent report Dushyant Shahrawat, Senior Analyst,
TowerGroup, said that the brokerage firms have the most to
gain from implementing Web services. According to him, Web
services can break down monolithic applications into
software components thus driving down integration costs.
The buy-side institutions, which were forced to purchase
integrated portfolio management, compliance, trading and
order-management platforms can swap out components rather
than rip out the entire system. Now, Web services can
decouple these four products sitting on the same system.
Moreover, if the buy-side wants to replace the fixed-income
functionality with an order management system, they can buy
the best-of-breed solution from multiple vendors and
install it with their proprietary-application suite, which
was an impossible task in the past.
I now l take my readers to another short journey through
XML and SOAP because the Web Services concept is incomplete
without these two components.
Extensive Markup Language ~ the perfect healer
XML, the founding technology behind Web services, has been
enthusiastically welcomed by the financial services sector.
According to ZapThink ~ an XML-focused industry analyst,
the pressures of integrating complex, disparate systems,
Straight-Through processing (STP) and T+1 settlement are
making XML adoption a reality. The Group predicts that the
expenditures on XML technologies by the financial services
sector will grow to $8.3 billion by 2005 from $985 million
Practically speaking, XML-based solutions seem to re-shape
the future capital markets arena because they:
Offer a means to internal integration of feeds from
Ease data integration and consolidation, thus
allowing creation of hubs for risk, trade, customer
Enable the creation of architectures, which can be
easily complimented and interchanged.
Remove dependency of firms on single legacy
systems, and give the opportunity to make the right choice
from multiple vendors.
Allow the purchaser to evaluate complex trade
practices without the pain of reformatting, thereby
improving market efficiency.
Enable electronic clearing, bidding goodbye to
manual paper work.
Help in describing the non-static nature of traded
There is no doubt that XML will bring about tremendous
changes in the whole business process from pre-trading to
post-trading and participants and vendors have almost
guaranteed that XML will be the next technology stopover
for capital markets in the future.
SOAP ~still miles to go
Simple Object Access Protocol or SOAP is a simple,
lightweight protocol for exchanging XML information over
the Internet to invoke Web Services across a network.
No matter how many disparate systems, web Services or
applications the data travels across, the technology is
designed in such a way that the receiver will be able to
clearly read the data as it was originally sent - in a
nice, clean package.
Recent research reports that SOAP's XML messages are not
suitable for transferring bulk data. So, use of SOAP
standards will definitely affect the capital markets, which
deals with huge amounts of data for communications. The
standard is criticized for being inefficient, as you need
to send more data to communicate than the existing
Lack of security measures in SOAP is compelling enterprises
to restrict their Web services experimentation to smaller
projects rather than pilot projects.
STP ~ the next revolution
Though the deadline for Straight-Through Processing (STP)
and trade-plus-one day (T+1) settlement is three years away
(2005), the financial services and securities companies are
gearing up for the big automation move, as it will help
them to discard redundant manual processes from pre-trading
to final settlement.
As the leading solution for enterprise integration, web
Services plays a very significant role for financial
services firms to deliver STP. In a Recent BEA survey of
the top 100 US-based financial institutions, 85% of
respondents said that Web services would play a role in STP
within the next two years.
Darren Oberest, Vice President of financial services at
webMethods, said in a report that Web Services would help
companies to leapfrog into the next generation of STP,
where customers can access firm's services automatically.
For example ~ Web services will enable a large bank embed a
brokerage firm's trading system into its own banking
applications, he said.
Web services have capabilities to help out innumerable
financial institutions like the Hedge Funds, to seamlessly
integrate their own legacy systems with the best product
from multiple vendors. The result is an industry-wide STP
that gives the opportunity to even the smallest buyers for
real-time connectivity to core services and utilities.
A viable option or an impractical wave?
Currently, there are no laid-out standards for electronic
communications of security identifiers, orders, quote
requests and allocation instructions. Web services may turn
out to be a savior for the industry. But, security and
reliability are the main concerns behind practical
implementation of Web services in the securities industry
that is highly risk-prone.
In a report, Gwen Alexander Moertel, IT Director for
Wachovia Securities Inc.'s Equity Capital Markets Division
is of the opinion that her company has no plans to use Web
services for mission-critical applications such as trading
due to security reasons. She also said that she is never
going to use Web services to send instructions for her
A TowerGroup report predicts that most securities firms
would remain suspicious of Web services until mid-2003,
when the technology will begin to mature and prove itself
in certain areas. But, the report also forecasts that the
technology may be dismissed by people in 2003, and then
picked up again in 2004 and 2005.
Except security and reliability, Web services have all the
potential to serve as the most viable, inexpensive,
economic alternative for service delivery and STP
mechanism. With promises to cut down business application
integration costs, to unite disparate business applications
regardless of their platforms to bring better business
returns, Web services has created a lot of hype all around
the industry. As its adoption has not been substantial in
the financial services sector, it is difficult to assess
its impact at this point of time.
It could be that only after 3 to 4 years, people will be
able to witness whether Web services has really kept its
About Pinnacle Systems, Inc.
Pinnacle Systems, Inc. is a technology consulting and
solutions provider to Capital Markets firms.
Pinnacle's in-depth domain expertise via its Capital
Markets Excellence Center (CMEC) in conjunction with its
Efficient Delivery Model (EDM) delivers cost-effective
project-based solutions to major global banks.
The company is headquartered in Piscataway, New Jersey,
with offices in New York City, and development centers in
Chennai, India. For more information visit www.pinnacle-
sys.com.You may also contact our Capital Markets experts
at: 275, Madison Avenue,6th Floor, New York, New York,
10016, USA. Tel: 212 880-3737
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