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8/3/2019 BaNCS Newsletter 10th Edition 10 2010
1/28
LCH.CLEARNET
launches
Synapse,
powered by
TCS BaNCS
Experience certaint. IT ServicesBusiness Soluti
Outsourcing
iNTELLigENTALCHEmy
2010 Number 10
Visit us at Booth A625 Visit us at Booth 415
ALSO iN THiS iSSUElSEI Investments Distribution Co.lMIT Center or Inormation Systems Research
l Liquidity in the Asian Caital MaretslBAI Retail Delivery ReortlAssessment o the Wealth Management industry
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PREPARING
FORTHE DECADEAHEADby N. Ganapath Subramaniam
President TCS Financial Solutions
During the last months o 2010, it is worthwhile to reect
upon the events o the past decade while also looking ahead
to what we may discover in the decade to come.
In working through its recent challenges, the nancial
services industry has already embarked upon a remarkable
transormation. As the results o this transormation become
evident over time, the economic benets o a stronger and
healthier nancial system are certain to accrue both to
the corporate sector and to households and individuals.
Furthermore, people within the nancial services industry
itsel will be able take justiable pride in regaining the public
trust in terms o duciary responsibility and stewardship o
the global economy.
The themes o both SIBOS in 2010 and BAI Retail Delivery
reect this industry-wide transition to a more robust,
responsible and resilient nancial system.
At BAI Retail Delivery, the agenda revolves around the
search or sustainable growth by enhancing the customer
experience through sel-service, business intelligence, and
core banking innovation. It is also noteworthy that BAI makes
special eorts to include non-nancial perspectives in its
conerence keynotes, as lessons and business practices rom
outside the industry have enormous value or practitioners
in nancial services. TCS Financial Solutions takes a similar
approach through our work with TCS Innovation Labs.
Drawing upon the breadth and depth o resources within
Tata Consultancy Services, TCS Innovation Labs provide
clients with roadmaps to deployment-ready technologies
and business models that combine the specic eatures
o nancial services with the best business practices rom
outside o the industry.
This years SIBOS in Amsterdam ocuses on the themes o
regulation, rebuilding trust, and recovery; all o these themes
are works-in-progress or the industry. While governments
have already taken action to institute more comprehensive
controls over the banking system, the specics and
implementation details o new regulations have yet to be
hammered out. Similarly, the process o rebuilding trust
has already begun, but the results will be visible in years
rather than months. The recovery in the global economy
is underway, and so is the regulatory ramework or an
updated nancial inrastructure.
From these themes, most nancial institutions look at the
ollowing as their key priorities or the uture:
l Growth: Whether by expansion into new markets,
initiatives in client acquisition and retention, or launch o
specic products, growth in all o its orms contributes to
revenue and margin improvements.
l Eective Eecution: Ways and means to increase
volume across multiple markets and businesses, with a clear
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
3/283
The process o rebuilding trusthas alread begun, but the results
will be visible in ears rather than months.
ocus on reducing cost per transaction.
lSeed:The ability to decrease time-to-market or the
delivery o client services as well as technology enablement
is an essential component o aligning the other priorities o
Growth and Eective Execution.
To that end, TCS BaNCS provides the ideal oundation or
delivering on these priorities across banking, capital markets
and insurance domains. The entire team at TCS Financial
Solutions is dedicated to ensuring that our clients are well-
prepared or the decade to come.
In this issue, you will nd two case studies that exempliy
our collaborative, team-based approach.
First, in our cover story, we describe LCH.Clearnets recent
launch o Synapse, powered by TCS BaNCS, which now
supports the ongoing operations and growth potential o
the London Metal Exchange. In the emerging regulatory
environment, the clearing unction has become an
essential component o the global nancial inrastructure.
The collaborative development o Synapse supports LCH.
Clearnets advantageous strategic positioning in the
clearing marketplace, establishing a clear pathway to rapid
development and uture growth.
We are extremely humbled by the commitment and
support demonstrated by the senior management o LCH.
Clearnet, LME and TCS to realize and deliver a program o
this scale and complexity. The collaboration, dedication
and exibility o the teams on the ground ensured the
deployment was smooth and successul. This has not just
laid a oundation or the Synapse program, but at a broader
relationship level, has also helped LCH.Clearnet and TCS
to better understand the collective capabilities that can
support a mutually benecial operating model in the years
to come.
In our second case study, we return to our esteemed client
SEI. Last year, we proled the launch o SEIs Global Wealth
Platorm, a solution or wealth managers with global assets
that combines investment management, processing and
advice. Concurrently with the collaborative development
and launch o SEIs Global Wealth Platorm, TCS Financial
Solutions also supported SEIs broker-dealer subsidiary,
SIDCO, with the launch o a groundbreaking agency
brokerage solution having improved customer workow
and unctionality. We are grateul or the opportunity to
support SEI in meeting its goals across multiple lines o
business, and or the vision and dedication shown by SEI
executives and sta members.
On behal o TCS, I would like to sincerely thank the
management teams and executives o both LCH.Clearnet
and SEI or their participation and inputs in these exemplary
case studies. n
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Welcome to the tenth issue o TCS BaNCS!
In 2007, TCS Financial Solutions was launched as a strategic business
unit o Tata Consultancy Services. Although TCS Financial Solutions was
a new name in the industry, our capabilities were built on a oundation
o experienced talent with deep subject-matter and domain knowledge,
backed by the extensive resources and delivery excellence o TCS.
We also created a new brand or our already very successul suite o
solutions or banking, capital markets and insurance TCS BaNCS.
Building a brand is never easy. Naturally, it takes more than a ew
sentences to explain the unique value propositions o TCS Financial
Solutions as the strategic business unit o a major global services, BPO
and consulting rm having our comprehensive set o business solu-
tions across multiple verticals within nancial services.
Fortunately, we have had amazing allies in our eorts to get the word
out about TCS Financial Solutions and TCS BaNCS: A highly-satised
customer base willing to share their testimonials about their business
successes using our market-tested solutions. Thats why we started the
TCS BaNCS newsletter, which is mailed to clients, prospects and indus-
try inuencers, as well as distributed at industry events including SIBOS
and BAI Retail Delivery (see page 20 or our interview with BAIs CEO
along with one o the bank executives who organized the conerence).
In our rst nine issues, weve eatured 27 in-depth customer stories,
representing an amazing range and diversity o nancial services busi-
nesses across Arica, Asia, Australia, Europe, North America and South
America. In this issue, we add two more stories to the list and they re
big ones LCH.Clearnet (see page 6) and SEI Distribution Company (see
page 12). Both o these prominent organizations granted us extensive
access to their executive teams, sharing their perceptive insights on
the strategic rationales or their business initiatives, their innovative ap-
proaches to sourcing and collaboration, and best practices rom imple-
mentation. We hope that these case studies oer value to readers not
just as a record o our past accomplishments, but also as examples or
organizations acing similar challenges. In this approach, were moving
toward the content model o the MIT Center or Inormation Systems
Research (see page 16), which layers high-level insights on top o on-
the-ground case studies.
Three years and ten issues later, the TCS BaNCS brand no longe
needs a lengthy introduction. Our activities are ollowed closely by par
ticipants in the nancial services industry and by the top analyst rms in
banking, capital markets and insurance (who also regularly contribute
to the TCS BaNCS Newsletter and to Promontory, the excellent TCS
BaNCS Research Journal). Were ranked #6 in the FinTech 100 (as o
2008 and 2009, up rom #10 in 2007 and #13 in 2006), were near the
top o the IBS Sales League Tables, and Gartner just named us as one
o the Leaders in their latest International Retail Core Banking repor
(see page 27).
For this recognition throughout the industry, we have only our cli-
ents to thank.
We oten hear rom clients that have been proled in previous issue
o the TCS BaNCS Newsletter. They tell us that their appearances in
case studies are widely read and highly valued by employees, business
partners, customers and prospects. We are always pleased to hear o
these positive outcomes as the result o our eorts in the TCS BaNCS
Newsletter, and to our clients and business partners, we warmly wel-
come and encourage your involvement in the next ten issues o TCS
BaNCS and beyond.
Until next time
Dennis Roman
Editor-in-Chie
Chie Marketing Ocer
TCS Financial Solutions
954 423 3560 oce
954 806 6660 cell
www.tcs.com/bancs
FROM THE EDITOR
letter
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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5
5
CONTENTS
About TCS Financial Solutions TCS Financial Solutions is a strategic business unit o Tata Consultancy Services. Dedicated to providing business
application solutions to nancial institutions globally, TCS Financial Solutions has compiled a comprehensive product
portolio under the brand name o TCS BaNCS. Our mission is to provide best o breed solutions that will drive growth,
reduce costs, mitigate risk and oer a aster speed to market or our clients. With a global customer base in excess o 240
institutions operating in over 80 countries, TCS Financial Solutions delivers state-o-the-art sotware solutions or the
banking, insurance and capital markets industries worldwide. For more inormation, visit us atwww.tcs.com/bancs.
About Tata Consultancy ServicesTata Consultancy Services is an IT services, business solutions and outsourcing organization that delivers real results
to global businesses, ensuring a level o certainty no other rm can match. TCS oers a consulting-led, integrated
portolio o IT and IT-enabled services delivered through its unique Global Network Delivery Model, recognized as
the benchmark o excellence in sotware development.
A part o the Tata Group, Indias largest industrial conglomerate, TCS has over 160,000 o the worlds best trained IT
consultants in 42 countries. The Company generated consolidated revenues o over US $6.3 billion or scal year
ended 31 March 2010 and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more
inormation, visit us at www.tcs.com.
2 Looking AheadN. Ganapathy Subramaniam on the decade to come.
6 Cover Story: A Partnership Forged in SteelLCH.Clearnet intends to become the premier multi-asset clearing house in the world, with TCS as a strategic par
12 Case Study: Sot Dollars, High Prots SEIs agency brokerage attracts order fow through sophisticated handling o sot-dollar commissions.
16 Intelligence: MIT Center or Inormation Systems Research Academics gather insights rom experienced IT practitioners to develop enterprise-ocused research.
18 Capital Markets: Looking or Liquidity In Asia Will dark pools transorm the Asian equities markets? I so, when?
20 Interview: BAI Report BAIs CEO and a banking executive on the BAI Retail Delivery planning committee discuss retail banking trends.
22 Brieng: Wealth Management Q&A with Vijay Ramachandran on wealth management, including pricing and segmentation models,
regulations, and technology.
26 News and Events Gartner Magic Quadrant; TCS BaNCS Market Inrastructure announcements;
photos rom TowerGroup and SIFMA; and upcoming events.
Copyright 2010, TCS Financial Solutions. All rights reserved. No part o this publication may be reprinted or reproduced without the written permission rom the editor. TCS B aNCS Magazine is provided to
clients and prospects on a regular basis. TCS Financial Solutions disclaims all warranties, whether expressed or implied. In no event will TCS Financial Solutions be liable or any damages on any inormation pro
vided within the magazine. The inormation is provided to outline TCS BaNCS general product direction. The editorial is to be used or general inormation purposes. The development, release, and timing o any
eatures or unctionality described or TCS Financial Solutions products remains at the sole discretion o TCS Financial Solutions.
12
16
22
6
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In 1888, London Clearing House was established to
clear commodities contracts in London. Over the
decades, LCH took on a greater role in the London
nancial markets, clearing a wide variety o nan-
cial instruments across trading venues. In 2003,
LCH merged with Clearnet, which was the clearing
house or all products traded in the European Euron-
ext markets. The resulting company, LCH.Clearnet,
brought on new exchange customers and began
clearing additional asset classes, spreading its geo-
graphical reach, and playing an increasingly critical
part o the global nancial inrastructure.
The Lehman collapse in 2008 brought increased
scrutiny to the systemic risk posed by uncleared OTC
derivatives. The market was going haywire, global
trade was rozen in its tracks, reight brokers were go-
ing bankrupt, and the commodities markets were un-
dergoing unprecedented volatility. That was a huge
call or the marketplace to make sure that they had
clearing houses to stand between counterparties,
says Alberto Pravettoni, Managing Director, Commer-
cial Services, LCH.Clearnet, who had worked exten-
sively with clearing organizations during his earlier
career with Goldman Sachs and Citibank. CCPs with
the right technology and processing solutions have
important repercussions or the real economy.
When counterparties to ailed banks ound themselves gasp-
ing or air on the wrong end o ailed trades, the resulting chaos
threatened to bring down the global banking system. Accord-
ingly, regulators and politicians around the world have pro-
moted an increased role or clearing houses. The ministers o
nance in major countries o the world have been
calling or all o these OTC derivatives to be centrally
cleared, explains Pravettoni. Banks will ace hety
capital charges or any non-clearing activity, and so
they have a huge incentive to clear these products
he says.
As the only clearing house with over 10 years o
experience clearing OTC derivatives and the only
one to have managed a member deault in a large
OTC market, LCH.Clearnet is in a strong position to
benet rom the move towards increased OTC clear
ing. We have a very substantial business in interes
rate swaps, were building what we hope will be a
substantial business in oreign exchange, and we
have launched a business in credit derivatives in
Paris, says Pravettoni.
Yet these new revenue opportunities have also
heightened the competition or clearing services
LCH.Clearnet competes with several other clearing
houses globally, including the clearing arms o ma
jor exchanges. Even beore the recent regulatory o-
cus on OTC derivatives, regulators have been aiming
to restructure the competitive environment in the
capital markets. Chie among these eorts has been
the Markets in Financial Instruments Directive (Mi
FID), a European Commission initiative that not only increased
competition in trading, but that also brought about higher lev-
els o competition in equity clearing.
In this increasingly competitive environment LCH.Clearne
will have to continue to innovate and build strong strategic rela
tionships across all the asset classes and markets it serves.
6
SyNAPSE:
A PARTNERSHIPFORGED IN STEELLCH.Clearnet intends to become the premier multi-asset
clearing house in the world, with TCS as a strategic partner
By R. Vivekanand, Global Head Market Inrastructure, TCS Financial Solutionscoverstory
Paul Ramanath
Orlando Chiesa
Alberto Pravettoni
Jonathan Moat
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DISCOVERING ALCHEMY
LCH.Clearnet began clearing u-
tures and options on commodities
or the London Metal Exchange (LME)
in 1987. LCH.Clearnets prior solution had
served LME well over the years, but began to
show its age with several limitations that were aecting
LME as well as its member rms, both in operations and on their
trading oors.
LCH.Clearnets legacy system had become out o date and
cumbersome. Also, or the operations teams at LME member
rms, the system lacked sucient straight-through processing
capabilities, making it dicult or commodities trading rms to
integrate clearing data into their internal systems. In 2007, LCH.
Clearnet began searching or a new solution to serve LME.
One o the core criteria was that the solution couldnt be the
intellectual property o a competitor in the clearing business, and
this ruled out using any o the exchange-owned-and-operated
technology providers. We wanted to make sure that we had the
right contractual relationship with our provider that would give
us the ability to use that technology reely across markets, says
Pravettoni. We had a strong desire to partner with somebody
with whom we could eel comortable as a long-term partner.
The search or a partner led directly to TCS Financial Solutions
and TCS BaNCS Market Inrastructure. Following a competitive
RFP process, TCS were chosen due to a combination o reasons
including pre-existing clearing sotware, domain experience in
our sector, and in particular, their commitment to deliver, ex-
plains Jonathan Moat, Director, Group Sourcing And Supplier
Management, LCH.Clearnet. This last actor proved to be crucial
during the subsequent delivery phase o the project and sus-
tained the project throughout.
The LCH.Clearnet executive
team recognized that TCS Financial
Solutions oered the industry presence
and expertise to deliver a strong solution.
TCS is very active in the nancial services industry,
observes Pravettoni. Given their track record and the quality
o the organization, we were very comortable that TCS Financial
Solutions would be a very good partner or us.
It was a straightorward decision to go with TCS, adds
Pravettoni.
Still, the selection o TCS Financial Solutions was a big deal or
LCH.Clearnet. It was the rst time or our organization to engage
with a provider outside o the City o London or not based in Par-
is, where we have our other operating entity, says Pravettoni.
Not only was it the rst oshore development deal or LCH.
Clearnet, but it was also an IT project with a greater scope and
complexity than had ever been attempted in the history o the
organization. The legacy system, despite its age, contained busi-
ness logic accumulated over two decades o working with doz-
ens o LME clearing members, and that unctionality had to be
maintained. The members had to be insulated rom having to
make signicant changes, even while enabling rollout o new
products. These requirements had to be absorbed on the de-
velopment end.
MELTING THE BARRIERS
The project, branded as Synapse, powered by TCS BaNCS,
kicked o in January 2008. At various points during the project,
rom 80 to 100 consultants rom TCS Financial Solutions were
dedicated to LCH.Clearnet, making it one o the largest mission-
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criticalimplementations perormed
by TCS Financial Solutions in the
capital markets vertical.
To steer the solution mapping and op-
erational deployment o the project to a success-
ul completion, LCH.Clearnet brought on Orlando Chiesa, who
during his tenure with UBS built up an entire global utures
and options clearing service. Chiesa let UBS in 1999, and then
worked with a competing clearing house, Eurex, beore joining
LCH.Clearnet in early 2009 in the role o director responsible or
development operations and risk.
The requirement or Synapse to replicate existing unctional-
ity increased the level o eort by an order o magnitude, result-
ing in a catalog o thousands o pages o business requirements
specications, Chiesa relates. The scope we had been given,
Build it as the business knows it today, denitely made it more
complicated.
As the project progressed, both parties realized that working
more closely together could deliver some real benets. Up until
that point, the two teams communicated mostly through dry
business requirements documents, with limited personal con-
tact and collaborative development.
In September 2008, the key people rom LCH.Clearnet and
TCS Financial Solutions held a three-day workshop where
they made critical decisions on how they would capture re-
quirements in the uture. Our lesson learned was irst to build
a culture, and take the time to work around a desk rather than
on paper, says Chiesa. Workshops became increasingly im-
portant.
Its a people business, adds Chiesa. Even though its sotware
development, the results heavily depend on how people work
together, how they react to one anoth
er, and how well they accept one other
In the end, this was the key to our success.
We also decided to co-locate the delivery
team, says program director Paul Ramanath. We
had the TCS onshore team sitting alongside the IT produc-
tion people, our developers, business analysts, business users
and risk management people. Initially, it took a bit o nurtur
ing and proactive team-building activities, but then people
started working well with each other, using a lot less email
relying much less on status reports, and working better as a
team.
LCH.Clearnet team members made more trips to Chennai o
collaborative testing and development. Things changed drasti
cally on a personal level, and long-term relationships developed
there, says Ramanath. When that happened, we saw that a suc-
cessul outcome was inevitable.
We learned that its very important to move people through
both sides o the delivery team, observes Ramanath.
Ultimately, the close teamwork paid o handsomely. TCS and
LCH.Clearnet worked as one team with the sole aim o making
the project a success, reports Ramanath. Throughout the proj
ect, everyone stayed positive and ocused towards the common
goal o a successul deployment.
Board members and company executives also spent time
with TCS Financial Solutions executives, crating business strat-
egy and responding to issues on the ground. There was neve
a question about support at the top levels o management o
driving the whole relationship orward, relates Ramanath. The
senior management team genuinely wanted to know what they
could do to make this work.
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SOLID FOUNDATION
LCH.Clearnet deployed Synapse or LME in late July 2010. One
o the production managers here said that it was perhaps the
most uneventul deployment he had ever seen, relates Ra-
manath. When you bear in mind the size and complexity o the
project, it was extraordinary.
The act that it went through so smoothly, is something thats
recognized as important by the whole team and the entire or-
ganization, adds Ramanath. Im very proud o the outcome.
To start, LME will quickly benet rom increased competitive
agility. Synapse gives the ability to launch more quickly, says
Pravettoni. Well be able to launch bullion contracts or LME in
November 2010, which is a validation o the exibility that we
have in the system.
Synapse has exible conguration options that enable LME
to add new commodities derivatives, quickly and easily. Syn-
apse can handle new derivatives on base metals and other stan-
dard commodities within the space o a ew days. Its just a little
bit o testing with the members and our downstream systems,
explains Chiesa. The setup o the product itsel, I can do in the
space o a coee break.
LME can earn revenues much aster and gain momentum
with new products, adds Chiesa.
LMEs 40 clearing members, who collectively hold approxi-
mately 1.8 million trade positions and have an average trade
volume o 30,000 trades per day, also benet greatly rom Syn-
apse. Throughout their operations, they now have advanced
support or business processes related to derivatives clearing,
including trade and position management, transers and ad-
justments, bulk transers, and settlements. In addition, Synapse
enables lower operational costs through straight-through pro-
cessing o clearing data, using the XI+ messaging protocol or
trade eeds, notications, and inquiries. TCS BaNCS Market In-
rastructure has ully STP electronic interactions with clearing
members, says Chiesa.
Synapse also supports last-minute trading decisions by com-
modity traders, who oten need to hold o on options decla-
rations until expiry. Weve had very positive eedback rom
members on the usability o the system, particularly around
options declaration, an area that theyre very sensitive about,
says Ramanath.
We are now harvesting a swathe o benets as a result o this
strategic implementation, said Martin Taylor, Group CIO, LCH.
Clearnet. This browser based, user riendly system brings in a
high degree o comort and compliance among the member
organizations while enhancing our exibility and agility in em-
bracing business challenges.
TCS Financial Solutions demonstrated their brand
promise throughout this mission critical implemen-
tation, adds Taylor.
9
TCS and LCH.Clearnet worked as
one team, with the sole aimo making the project a success.
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BUILDING ON SUCCESS
Now that LME has gone live, the work o achieving broader
competitive advantage in the clearing marketplace can re-
ally begin.
Following a roadmap that had been hammered out through
the strategy sessions between LCH.Clearnet and TCS Financial
Solutions, in a unique collaborative product management mod-
el, the TCS development team has already begun work on o the
next iteration o Synapse, which will be ready in early 2011. The
new version will be based on the latest version o TCS BaNCS
Market Inrastructure, updated with the custom components o
the code base now live at LME.
There has always been debate in the industry about the real
value o relationships or partnerships between suppliers and
customers, but this has been a testament to its power, remarks
Moat. The combination o a demonstrated commitment to
delivery and the commitment to LCH.Clearnet rom the man-
agement o TCS has been the basis upon which the scope o
services rom TCS has now grown substantially beyond the initial
engagement.
The next version o Synapse will provide the ultimate level o
exibility in account structures or both position accounts and
margin accounts. Instead o just being able to open a clearing
account or their own transactions, clearing members will be
able to establish sub-accounts or each o their customers, who
in turn can create their own sub-accounts, nine levels deep. And
at each level, Synapse will be able to track positions using either
net or gross calculations, which enables an incredibly exible
range o options or cross-border clearing relationships. This
enables nal beneciary accounting at the clearing house level,
which meets the regulatory requirements that exist anywhere in
the world on keeping position accounts, says Chiesa.
Furthermore, the next version will have a parallel multi-layered
structure or margin accounting, which can be kept on either a
segregated or non-segregated basis according to the local regu
lations o the commodities trader. You can even provide mar
gin calculations or clearing members so that they dont need
a back-oce system at all, as they can rely upon the clearing
house to calculate their margins according to their own meth
odologies, observes Chiesa.
This is new ground not just in commodities derivatives, bu
in the clearing business overall. The industry today has systems
which allow rms to do just what the rules and regulations say
but they have very limited exibility, says Chiesa. I havent seen
any other clearing system at any other clearing house that has
the accounting exibility o Synapse.
Eventually, LCH.Clearnet will seek to consolidate both listed
and OTC commodities derivatives onto Synapse. Currently, OTC
commodities derivatives are handled by a separate solution
We want to migrate out o that system and onto Synapse, says
Pravettoni.
Im very comortable about where we are now, and I can see
that TCS was denitely the right decision or LCH.Clearnet, re
marks Pravettoni. I have very high expectations that what weve
built over the past two years with Synapse is just the rst step in
deepening our relationship. The role o TCS is central to develop
ing our strategy.
We have developed an excellent relationship with TCS and
see them as important strategic partners in the development
o our technology solutions, remarks Roger Liddell, Chie Execu
tive, LCH.Clearnet Group.
TCS Financial Solutions
demonstrated their brandpromise throughout this
mission-critical implementation.
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Below, rom let to right:
Michael Bischo (Director, IT Dev and Production)
Allan Mycrot (Director, IT Systems Integration)
Jonathan Moat (Director, Group Sourcing
and Supplier Management)
Martin Foakes (Commercial Manager)
R Vivekanand (Global Head, Market Inrastructure, TCS FS)
Alberto Pravettoni (MD, Commercial Services)
Chris Tupker (Chairman o LCH.Clearnet Group, Retired)
C Kiran Seshadri (LCH.Clearnet Client Partner, TCS FS)
John Townend (Board Member, LCH.Clearnet Group)
Martin Taylor (Group CIO)
NG Subramaniam (President, TCS FS)
Tej Bhatla (Head o BFS Europe Industry Solution Unit, TCS)
Sunil Chopra (Global Head o BFS Sales, TCS)
Strategy meeting between LCH.Clearnet and TCS, in India.
FAST FACTSThe London Metal Exchange, the worlds premier base metals market, oers
metals price risk management tools including utures and options contracts
or aluminum, copper, tin, nickel, zinc, lead, the U.S. Securities and Exchange
Commission alloy and NASAAC, steel billet, plastics and soon cobalt and
molybdenum. Last year, the total value o trading was $7.41trillion and the
Exchange currently has 5.96m tonnes o material on warrant in 633 storage
acilities across 39 locations globally.
LCH.Clearnet Group is the leading independent clearing house group, serv-
ing major international exchanges and platorms, as well as a range o OTC
markets. It clears a broad range o asset classes including: securities, exchange
traded derivatives, energy, reight, interest rate swaps, credit derivative swaps,
and euro and sterling denominated bonds and repos; and works closely with
market participants and exchanges to identiy and develop clearing services
or new asset classes. LCH.Clearnet Group Ltd is owned 83% by users and 17%
by exchanges.
AT A GLANCECompan: LCH.Clearnet Group Ltd.
Headuarters: London and Paris
Business Challenges:
To clear all commodities derivatives trades or the London Metal Exchange
and its members on a single platorm.
To enable the rapid launch o new products in new markets,
with customizable clearing services.
Solution:
TCS BaNCS Market Inrastructure supports the entire range o commodities
derivatives trading or London Metal Exchange, while providing LCH.
Clearnet with a strong oundation or urther growth across other asset
classes. The component-based, n-tiered J2EE architecture is built on a
technology stack including Sun Solaris, Oracle, and Weblogic.
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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cases
tudy
SOFT DOLLARS
HIGH PROFITSSEIs agency brokerage attracts order fowthrough sophisticated handling o sot-dollar commissionsBy D. K. Tiwari, Global Program Head, TCS Financial Solutions
SEIINVESTMENTS DISTRIBUTION
COMPANY (SIDCO), the broker-
dealer arm o Oaks, Pa.-based
SEI (NASDAQ: SEIC), acts as an agency-based
broker or banks, investment managers, endow-
ments, oundations, insurance companies, and
plan sponsors. SIDCO does not trade on its own
account, but rather provides best-execution ser-
vices to equities market participants across mul-
tiple trading venues.
In todays market, investment managers rely
upon a wider range o execution venues than
ever beore. The ongoing evolution o trad-
ing has resulted in more orders migrating rom
traditional trading venues to new liquidity ven-
ues, such as dark pools and broker-sponsored
entities, says Maxine Chou, SIDCOs CFO, Trea-
surer and COO, who has executive supervisory
responsibility or all o SIDCOs nancial and
operational matters. Investment managers are
designing order handling rules such that trades
above a given volume threshold will go to one
marketplace, while trades in a given stock will be
sent to another marketplace.
All o these changes are technology-driven,
and we have to be prepared to support the in-
creased range and diversity o our clients trad-
ing partners, adds Chou.
Stemming rom the broader range o execu-
tion venues, one o the trickier challenges or an
agency-based broker such as SEI is handling the
various ways in which commissions are calcu-
lated, paid and allocated. Although investment
managers at mutual unds, banks, and advisory
rms can execute equity trades through any
registered securities broker, their duciary re-
sponsibility to investors requires that they select
a broker-dealer or any given trade on the crite-
ria o best execution, a combination o speed,
price and execution quality that maximizes the
value o client portolios.
As part o these best-execution criteria, the
U.S.Securities and Exchange Commission (SEC
allows the use o sot-dollar arrangements, in
which broker-dealers allocate a portion o thei
commissions to pay or qualiying research o
brokerage services on behal o investmen
managers.Eligible research or brokerage services
under the SECs sae harbor rule are those ser
vices that assist in investment decision-making
where the amount paid is reasonable consider
ing the value provided. For example, investmen
managers can use their sot-dollar accounts to
pay or research reports on a given stock or in
dustry, consultations with research analysts, o
subscriptions to securities-related data services
Also permitted is the use o sot dollars to pay
or brokerage transactions, clearing, settlement
custody, and post-trade services.
When paying or eligible research and broker
age services, investment managers tend to pre
er sot-dollar arrangements rather than hard
dollars, which have to be included as a separate
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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7
13
line item on a prot and loss statement.
Investors also benet rom this dynamic, albeit
indirectly, as it ultimately results in a wider pool
o investment managers, and also because the
expanded use o research supports a stronger
community o independent research providers
than would exist otherwise.
Under guidelines issued in 2006, qualiying
research can be sourced rom third-party pro-
viders, rather than just rom the research arm
o the broker-dealer as was typically the case
in the past. But the unbundling o research and
trading has created a new set o challenges in
tracking sot-dollar balances across multiple
broker-dealers, instructing broker-dealers to
pay invoices to multiple research providers,
and appropriately budgeting or research ex-
penditures.
SOT-DOLLAR SPECIALISTS
For SIDCOs customers, sot-dollar payments
have strategic importance. Aside rom person-
nel costs, research is typically one o the largest
components o a money managers P&L, says
Kevin Barr, President and CEO o SIDCO and also
unit leader o the Investment Management Unit
at SEI. Unless you have a handle on your sot
dollars, you cant understand how much youre
paying or specic research.
Customers pay close attention to how they
can use sot dollars to pay bills that otherwise
would have to be paid or out o the prots o
the company, explains Barr. Youre trying to
budget it so that your expenses exactly match
your sot-dollar deposits.
There are two types o ineciencies that
might happen in sot-dollar budgeting. First, i
you generate excess sot dollars with a broker
without invoices to pay, those are going to sit
in an account. Youve reduced returns to your
client because youre charging a higher com-
mission, but until its used youre not getting
any benet rom that commission, says Barr. On
the ip side, i you have too many expenses but
dont generate enough trades, the broker will
expect you to cut them a check or to give them
more business.
Furthermore, sot-dollar budgeting isnt
something that you can set at the beginning
o the year and then orget about it. Everyone
comes up with a sot-dollar budget based on
the expected order ow, Barr explains. But trad-
ing volumes are unpredictable.
Ideally, investment managers should be able
to recalibrate their budgets based on their
daily trading activities. Most people develop a
sot-dollar budget and then allocate expenses
against that budget, says Barr. I theres a mis-
match between sot dollars and expenses, they
want to know up ront.
STAR POTENTIAL
In 2005, SIDCO quickly recognized the inorma-
tion management challenge o sot-dollar ac-
counting as a business opportunity with high
prot potential.
At the time, the sot-dollar regulations were
in ux. When we started looking at how the in-
dustry approached sot-dollar transactions, we
realized that there werent any good technol-
ogy solutions in the marketplace, says Barr. That
prompted us to sit down with TCS and think
about how we could create our own solution.
SIDCO had been calculating brokerage com-
Unless ou have
a handle onour sot dollars,you cant
understandhow much
youre paying orspecic research.
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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missions on an AS/400 legacy platorm. It was
airly inexible when it came to making adjust-
ments based on either changing regulations
or changing business needs, relates Bill Kynett,
SIDCOs technology director.
Working with clients using this system was
also cumbersome and time-consuming, both
or SIDCO employees and customers. Custom-
ers would have to ax their invoices to SEI, and
then manually conrm with an accounting rep
which ones they wanted to be paid, says Kynett.
Then, theyd have to call in to check their bal-
ances to see i they had enough money in their
sot-dollar accounts.
In addition, connecting to each broker-dealer
required signicant IT resources and custom
programming to capture the various eeds and
le ormats in use. The lead time to gure out
the normalization and any other programming
that needed to happen around those eeds was
airly lengthy, a couple months in total, says
Kynett. The developers would have to go back
and orth with each new broker beore we could
nally get it right.
TCS had already been on-site since 2003
working on SEIs Global Wealth Platorm (see TCS
BaNCS issue #7). In August 2005, the SIDCO
team rst sat down with TCS. We looked at TCS
BaNCS to see i its exibility and client-server
architecture would meet our requirements,
which in act it did, says Kynett. We were able
to select TCS BaNCS as the building block or a
new brokerage commission system.
Just ten months ater the initial meeting, SID-
CO had itsel a brand new system, dubbed STAR,
built rom scratch on the TCS BaNCS ounda-
tion. The implementation timeline was very ag-
gressive, said Kynett. Because o the exibility o
the base TCS BaNCS platorm and the resources
that TCS applied to the project, we were able to
meet our milestones on-time. We kicked o the
go-live right when we said we would.
The ast and proessional development pro-
cess cleared up any initial hesitation about
bringing in an external partner. When we start-
ed working with a third party, and especially
someone rom oshore, we were a little hesi-
tant, says John Coary, who administers the STAR
systemand handles various nancial and regu-
latory reporting unctions in SIDCOs account-
ing department. It worked very smoothly. We
described our business model to TCS subject-
matter experts, and they were able to go back
and build the process ows that were needed to
create a solution.
Everybody worked hard, adds Coary. We
converted 1,500 accounts rom our legacy sys-
tem, plus static data, over to the new system in
one weekend, which was pretty incredible.
A DELICATE BALANCE
The solution captures the details o broker-deale
transactions provided by dierent counterpar
ties in dierent ormats. TCS helped us design a
utility that normalizes the les and then import
into the STAR system, says Kynett. Changes can
be made, to a certain extent, without any cod
ing. We can just set conguration parameters
and then the eeds are normalized to the point
where the STAR import routines can easily inter
pret them and load them in.
Now, it only takes a ew weeks rom the tech
nical side to get a new customer in place, add
Kynett.
Then, those transactions related to sot-dolla
arrangements are placed into a holding queue
and a SIDCO account clerk in the accounting
department personally reviews each transac
tion. Beore the account clerk releases the data
they have to reconcile the data in our system
and the data provided by the broker, says Max-
ine Chou. This is a very controlled process. Ate
all the data goes through the gate, we can be
sure that no mistakes were made.
Clients then receive conrmation that thei
sot-dollar balances have been updated. At al
times, they know how much credit they have
within their account and how much money
they can spend, says Chou. This helps them to
budget their research expenses.
As they review their real-time balances, cli
ents can spend the money in their sot-dolla
accounts on qualiied expenses under the
SECs sae harbor criteria. With their approval
our people here can pay those bills on behal
o a client, and we check to make sure all o
the invoices are in compliance with the sae
The STAR
sstemsimplieswhat
had beena laboriouschore or
investmentmanagers.
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9
15
harbor rule, says Chou.
The STAR system simpliies what had been
a laborious chore or investment managers.
Previously, all o that was a manual process,
relates Kynett. Theyd have to call in to check
their balances to see i they had enough
money in their sot-dollar accounts, and then
theyd have to ax invoices to SEI and manu-
ally conirm with an accounting rep what they
wanted to be paid.
Now, the clients themselves can log into
the system, view their balances, and run re-
ports to see what kinds o transactions they ve
done, says Kynett. We import invoices rom
their vendors directly into the client portal,
and the invoice images appear to the client
when they log in.
The improved workow means that SIDCO can
maintain higher-level relationships beyond han-
dling burdensome paperwork. It has improved
our interaction with clients, and improved client
satisaction greatly, says Sherry Wrzesniewski
rom SIDCOs accounting department. Because
o this web application, our clients are no lon-
ger completely dependent on SIDCO or access
to their own data. Clients can sel-serve on their
own schedule.
Consequently, eedback has been extremely
positive. From what weve heard rom clients,
this is the best sot-dollar commission system
theyve seen out there, states Kynett.
RISING STAR
The STAR system has enabled SIDCO to dier-
entiate its agency brokerage business within a
highly competitive marketplace. The TCS ap-
proach, o bringing in knowledgeable business
analysts with strong development capabilities,
allowed us to build a unique application in the
industry, on a timely and economical basis, says
Barr. More than our years ater the rollout, its
still a best-o-breed solution in the marketplace,
which is testament to the design capabilities
and execution capabilities o TCS.
With the STAR system, SIDCO maximizes the
value o clients trading activities while minimiz-
ing their time and eort managing the details.
Clients get best execution along with the op-
portunity to outsource the accounts payable
unction associated with those activities that are
eligible or sot-dollar payment, while retaining
control o the approval process, says Barr.
In addition to what the STAR system has done
or external clients, it has also improved opera-
tions, protability and manageability within in-
ternal operations. TCS provided us with supe-
rior technology in meeting our business needs,
and their excellent service gives us the reedom
and time to manage our other businesses, says
Chou. TCS enables us to improve our clients ser-
vices and increase their satisaction, and we are
grateul or that.
Even examiners are impressed. When our
regulators come in to audit or books, they al-
ways ask us dierent questions, relates Chou.
Each time, were always able to provide the in-
ormation quickly, and our regulators are quite
impressed with that ability.
The oundation o the STAR system, based on
TCS BaNCS, prepares SIDCO or growth in the
years to come. Were looking into going global
trading securities in oreign countries and or-
eign currencies, says Chou. Thats an area we
can improve upon. n
AT A GLANCE
Compan:
SEI Investments Distribution Company
(SIDCO), the broker-dealer arm o Oaks, Pa.-
based SEI, provides brokerage services to
banks, investment managers, endowments,
oundations, insurance companies, and plan
sponsors.
Headuarters:
Oaks, Pennsylvania, USA
Business Challenge:
To enable investment managers to use
sot-dollar accounts rom multiple counter-
parties to pay or research and brokerage
services through an automated online
portal.
Solution:
Custom solution built on TCS BaNCS
platorm.
Maxine Chou
Kevin Barr
Bill Kynett
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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intellig
ence
For 36 years, the MIT Center or Inormation Systems Research (CISR) has
ocused on its mission o helping practitioners get value rom inorma-
tion technology. Tata Consultancy Services is one o eight global com
panies acting as CISR Research Patron.
MIT CISRs approach combines the rigor o academic research with a real
world perspective, dierentiating them rom both traditional industry research
irms and academic researchers. Academics will examine interesting questions
whether or not they have immediate impacts, says Jeanne W. Ross, CISRs Direc
tor & Principal Research Scientist. At CISR, we apply the rigor o academic meth
odology and apply theoretical underpinnings to our research or practice.
MIT CISRs six-person research sta interviews and surveys IT practitioners
within sponsoring organizations, which currently include 82 major companies
and government agencies, and supplement sponsor data with inter-
views and surveys at other leading organizations. These practitioner
include CIOs, system architects and program managers on the IT side
In many cases, these practitioners can provide MIT CISR with urthe
access to the non-IT people deriving the beneits rom IT.
When researchers do gain access beyond IT, that act in itsel is an
indication o the relative maturity o the IT unction o an organiza
tion. We see a very great dierence rom irm to irm in terms o the
relationship between IT and the business side, observes Ross. Some
IT people say, Sure, which person do you want to talk with, while oth
ers say, I dont think anybody will want to talk about IT wi th you.
The holdouts are missing out on a great opportunity. We ind tha
people really enjoy being interviewed, says Ross. Just taking an hou
out o a very busy week to think about what youre doing can be very
valuable.
Plus, all MIT CISR sponsors receive a ull complement o research results, in-
cluding summary brieings, extended case studies, working papers, and presen
tations based on the interviews. The indings are also discussed with sponsors
during interactive sessions.
MIT S
REALWORLDRESEARCH
Academics gather insights
rom experiencedIT practitioners to develop
enterprise-ocused research
By Alex Goldrick, Marketing &
Communications Manager,
Asia Pacic,
TCS Financial Solutions
Jeanne W. Ross
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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11
17
RECENTRESEARCH
MIT CISRs research includes rameworks and models designed to help
executives to sel-assess and improve the readiness and eectivenes
o their own enterprises, including but not limited to IT-related con-
siderations.
For example, an August 2010 paper, Achieving Superior Business
Value rom Digitization: The MIT CISR Value Framework, evaluated the
results o 15 years worth o case studies. In doing so, CISR researcher
identied our high-level management commitments typical o top-
perorming rms.
The rst element is Strategic Choice-making, through which senio
executives commit to a specic operating model while at the same
time clearly rejecting other possibilities.
Strategic choice leads to the second element in the ramework
Distinctive Digitization, which describes how well the rms vision is
maniested through its IT inrastructure, business process platorms
data assets, and electronic linkages to partners.
The third element, Working Smarter, denes how well employees
are able to make use o the rms distinctive digital capabilities.
Finally, Actionable Assessment is a rm-wide commitment to use
business metrics, incentives, and eedback mechanisms to align indi
vidual actions and partners contributions with enterprise goals.
STAGES OF GROWTH
Another MIT CISR research paper described the our stages that com
panies grow through rom an IT perspective. The rst, early stage, in-
volves building all o the systems needed to start and grow a business
Then, the second stage imposes discipline on investment decision
and methodology, resulting in dened methodologies or IT manage
ment. The third stage optimizes business processes through shared
data denitions and standardized business practices.
In the nal, ourth stage, companies have reusable, standardized
components and processes that can be deployed in new ways as
needed. Theyre able to take their standardized process and reuse
them in a way that allows them to take advantage o new business
opportunities such as mergers, geographic expansion and new marke
entry, says Ross.
Companies that reach this ourth stage have increased exibility to
engage in transormative BPO. I your processes are well understood
and you can start to componentize them, youll be able to take the bes
advantage o BPO, notes Ross. You can stop doing things that have no
value-add to you internally, and let a partner take that on. n
ITs NEW LOOKThe dierent models o IT that have emerged are:
1. Solution delivery
ITs major ocus is on solution delivery. This
is similar to ITs traditional role although de-
livery might include SaaS or open sourcing.
2. Business rocess eerts
IT helps to design and implement end-to-
end processes and critical business process
components; will oten include responsibil-
ity or TQM and Six Sigma.
3. Revenue generation/innovation
IT takes responsibility or digital products
and services.
4. Business services
IT provides advice, training, standards,
policies to business unit managers who
maintain control o IT within the business
much like HR in rms with a corporate HR
unction.
One o the really interesting aspects o this
study is the division o labor between IT and
the business or the more digital responsibilities
that are emerging in rms. This includes busi-
ness process design, business process optimiza-
tion, collaboration and social media, business
intelligence and analytics, master data manage-
ment, strategic vendor management, strategic
experiments, and technology evaluation. Our
early results show little consensus in how these
responsibilities are divided. Jeanne W. Ross
8/3/2019 BaNCS Newsletter 10th Edition 10 2010
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In conjunction with the Asian Banker Summit in Singapore in April,
the Markets and Exchanges Convention brought together inra-
structure providers, exchanges, broker-dealers, bank treasurers and
market heads, und managers and related fnancial institutions and
counter-parties. At the convention, TCS Financial Solutions partici-
pated in a panel titled Delivering sustainable liquidity or a growing
Asian market, eaturing Bharat Shah, Product Director, TCS BaNCS
Securities Trading. Shah shared his perspective on what it would
take or dark pools to transorm the Asian equities markets in the
manner that theyve transormed markets in the U.S. and Europe.
The panel, moderated by Zennon Kapron, ounder and manager
o Kapronasia, a research frm ocused on the Chinese fnancial ser-
vices market, also included executives rom Chi-East, Liquidnet Asia,
Nomura Securities and Oliver Wyman.
As markets moved away rom the open outcry trading o
the 20th century, the electronic trading venues at rst
mirrored their ofine counterparts. Traders would open-
ly post bid and ask prices or a stated volume o shares in a given
stock and accept others bids and asking prices. Yet as trading
volumes increased, it became increasingly dicult or traders to
move large blocks o shares without having the market move
against them.
The solution was dark pools, or in the industry terminology,
non-display liquidity. These alternative trading venues allow
traders to nd counterparties to large trades without reveal-
ing their intentions to the broader market. In the U.S. and Eu-
rope, where securities regulations support the existence o dark
pools, a whole host o dierent venues have emerged, includ-
ing those operated through brokers own matching systems,
through agency brokers, and even rom the legacy exchanges
themselves. The ensuing competition has lowered prices and
increased eciency, leading to more requent trading at highe
volumes.
Now, non-display liquidity venues are coming to Asia, and
Japans equities market provides an illustrative example. At the
start o 2010, the Tokyo Stock Exchange (TSE) implemented it
new Arrowhead trading platorm, which doubled the TSEs pre
vious systems trading capacity while also reducing latency o
order acknowledgement rom seconds to milliseconds. These
changes made it possible or high-requency traders to operate
eectively in the market. In addition, Arrowhead includes sup
port or proprietary trading systems, which gives traders alter
nate venues or trade execution. There are now six alternative
trading venues in Japan driving down trading costs and improv
ing trader participation. In parallel, the Japan Securities Clearing
Corporation (JSCC) reduced costs or clearing and settlement
urther propelling market activity. Funds have poured into Ja
pan rom specialist trading rms, and theyve increased liquidity
observed Ned Phillips, CEO o Chi-East, a joint venture between
the European venue Chi-X and the Singapore Exchange (SGX
that launched a non-display liquidity venue or traders in securi
ties listed in Australia, Hong Kong, Japan and Singapore.
Even though Asian markets have dierent dynamics, its the
same end result that people want to get a trade done e
ciently, and to get it done cost-eectively, said Phillips.
Nevertheless, other markets will likely take their time to lay
the groundwork beore opening up to non-display liquidity ven
ues, observes Bharat Shah, Product Director, TCS BaNCS Securi
ties Trading.
Shah outlines our things that have to be in place or non
display liquidity to take rm hold across Asian equities markets.
LOOKING
FORLIqUIDITy IN ASIANon-display liquidity venues known as dark pools have transormed
the U.S. and European equities marketplaces but when will Asia jump in
By Shekar Hegde, Head o Pre-Sales, Securities Trading, TCS Financial Solutions
1 2
18
cap
italma
rkets
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First, there has to be a countr-b-countr ocus on market
inrastructure.Latency is going to be a key issue, as dark pools
are eective only when you have millisecond-level latency, said
Shah. Each country needs to look at its market inrastructure to
improve latency.
Paired with the need or latency is the question o co-location.
Market strategies succeed or ail based on how quickly, in mil-
liseconds, trading rms can buy and sell equities. The speed re-
quirement makes it critically important or exchange operators
to provide clear indications o the rules and practices by which
trading parties can tap into exchanges networks, whether rom
the standpoint o network topology, power availability, or real
estate.
Second, alternative trading venues create unctional sepa-
ration between trading activities and clearing and settle-
ment, which poses a new challenge in markets in which the
exchange currentl integrates both unctions. You cannot ex-
pect a trading member to become a clearing member with all o
the venues, says Shah. To be a trading member and a clearing
member with so many venues is in itsel another cost actor.
Thus, market participants will need to operate through trad-
ing hubs that provide many-to-many connections between
trading rms and liquidity venues. These hubs must preserve
the ability o trading rms to connect to their preerred clearing
and settlement providers even as they seek out best execution
across multiple trading venues.
Third, trading rms will need to implement technolog-
based solutions that optimize trading strategies across multi-
ple trading venues. The volumes are going to increase tremen-
dously, says Shah. For this, rms will need smart order routing,
which quickly checks all o the liquidity pools and makes trading
decisions in a split second.
Fourth, regulators and market participants will have to g-
ure out market data challenges. How are we going to handle
market data standardization when we have 60 liquidity venues?
asks Shah.
Its an unsolved problem, and its one aced by anyone trying
to gure out the current price o a stock. Do you look at the
price on the London Stock Exchange? Is it the price on Chi-X?
BATS? Turquoise? Thats an issue thats still unresolved in Eu-
rope, observed Chi-Easts Phillips. Thats something that has
to happen in Asia as well.
Even i meaningul share prices can be determined, there are
urther questions about the mechanics o how prices are prop-
agated to the market. Are you going to be able to take mar-
ket data rom aggregated market data vendors like Reuters or
Bloomberg, or will you be directly taking market data rom the
exchanges? asks Shah. The latency will be quite dierent when
you subscribe to an exchange market data eed compared to
the market data aggregator.
BUILDING INFRASTRUCTURE FIRST
Stemming rom these challenges, Shah expects that the
transition to non-display liquidity will not happen over-
night. Its going to be a very slow process to allow these
pools to come in, says Shah.
The linchpin to progress is market inrastructure, which brings
local markets up to par with emerging global market practices.
People normally look at trading rst, says Shah. But we should
consider the back oce and the risk aspects as very important
rom the beginning.
In addition, widespread dark-pool expansion in Asia along the
European and American models may take a long time to mate-
rialize, and in some markets, the exchanges may even grow in
inuence beore alternative trading venues gain a oothold.
In India, institutional block trades are already handled through
the exchanges themselves. Even oreign exchange instruments
are being brought onto the exchange, notes Shah. More and
more ocus is being placed on exchange-traded instruments.
Exchange-promoted dark pools may have a decided advan-
tage in Asian markets. Because the political benet o protect-
ing retail investors interests outweighs the abstract market
improvement that may accrue i dark pools were made more
widely available, national regulators in Asia tend to avor the in-
terests o the domestic retail investor base rather than the local
subsidiaries o global institutional investors. Given these political
sensitivities, and the perception that exchanges create a airer
playing eld or retail investors, exchange-promoted dark pools
are more likely to succeed than independent or broker promot-
ed dark pools, suggests Shah. n
From ar let:
1.Ned Phillips,
CEO, Chi-East;
2. Zennon
Kapron,
Kapronasia;
Bharat Shah,
TCS Financial
Solutions;
3. Bharat
Shah, TCS FS;
Christian A.
Edelmann,
Oliver Wman;
Ned Phillips,
Chi-East; Bahar
Brown,
Nomura;
Gregor
Henr,
Liuidnet Asia
4. Zennon
Kapron,
Kapronasia
3 4
19
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BAIREPORTA conversation with Debbie Bianucci, CEO o BAI and
Manuel A. Chinea, Chie Marketing Ocer and SVP,
U.S. Retail Banking Operations, Banco Popular North America
What are your general ersectives on the state o the
fnancial services industry?
CHINEA: Were nowhere near out o the woods yet in terms
o credit quality issues, but certainly we seem to have turned the
corner. Up to this point, the ocus has been around credit quality
and capital adequacy, and most banks have dealt with those issues.
There seems to be a shit back to the business and towards the
uture. The industry still has issues to deal with, but were starting to
pursue business more aggressively while taking into account lessons
learned.
Many banks are taking a look at their value propositions, revisiting
their business models, and making adjustments in light o all o
the recent regulatory changes. Were all looking or sustainable,
protable growth.
How has BAI heled its membershi to adjust to these
regulatory changes?
BIANUCCI: In retail banking, the changing consumer is a critically
important part o the banks evolution o how they look at the
uture.
Consumers have considerably greater knowledge about the
banking industry because o what weve gone through over the past
couple years, with the intense media spotlight on the nancial sector.
So much has been visible to consumers in ways that we hadnt really
seen prior to that.
Consumers are also changing their preerences and behaviors,
particularly in how they use technology. For example, the use o
mobile technology will have a huge impact on the way in which
consumers decide who they bank with and how they bank.
Through the BAI Retail Delivery conerence and through research
that we conduct, we help banks to understand the changes that
consumers are making in attitudes, preerences and behaviors, and
to establish strategies that capitalize on knowledge o the needs and
wants o various segments o the consumer market.
Now that bans are looing orward, what tye o IT
rojects are retail bans ursuing now?
CHINEA: To start, were looking to use technology to enhance the
customer experience. We are also employing technology to eithe
enhance existing services in a way that creates value, or to drive
potential new sources o revenue that could help us oset some o
the areas curtailed by regulatory reorm.
On the cost eciency side, weve been investing in ways to delive
services to customers while also reducing costs to the bank. One
example is sel-service, which customers perceive to be o value
while also representing cost savings or us. Mobile banking and
online banking is a good example o that, as is the ability to open
accounts online. Anything that can be perceived as adding value
to the customer relationship while also being delivered in a cost
eective way is high on our priority list or IT investment.
Also, were always looking to improve our metrics and incentive
plans. We plan to continue investing in enhanced metrics, aimed a
better aligning our protability measurements with incentives, and
improving the systems we put in ront o our employees to manage
customer interactions.
BIANUCCI:Three areas that are starting to pick up considerably
First is the sel-service mobile area, which as Manuel mentioned
allows customers to receive nancial services in ways that are more
convenient or them and create some eciencies or their banks.
The second area is in the category o business intelligence. The
massive wave o regulatory changes has aected ee income and
product strategies, particularly in how segment protability i
calculated. New orms o inormation and intelligence are essentia
to managing these changes.
The third area is in core banking systems. With the man
challenges acing banks over the past ew years, many organization
have delayed major technology initiatives. Now we see more banks
beginning to examine their longer-term innovation and technology
strategies and realizing that they must establish clear direction o
how they will evolve over time.
These three areas sel-service, business intelligence and
core banking are increasingly high priorities or the industry
inter
view
Debbie Bianucci
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21
How did you structure the conerence to address these
needs?
BIANUCCI:Our team at BAI works with bank executives, consultants
and solutions providers who specialize in retail banking. The world
has changed, consumers have changed, and the conerence has
changed considerably on a number o levels to reect this. We
have built an event that will look considerably dierent than past
conerences in terms o the content, the structure, the options or
attendees, and the technology presented at the expo.
Segmentation is critically important to banks as they look at
their customers, and weve also taken a dierent approach to
segmentation this year at BAI Retail Delivery. Weve created summits
in Marketing, Multi-Channel Strategy, Product Management and
Sales designed especially or retail nancial services proessionals
who want to ocus on these topics. Conerences use tracks all the
time, but whats dierent about this structure is that each Summit
is designed as a standalone event with moderators or each Summit
who will connect the dots rom one session to another.
Another change is that were drawing upon the expertise o
people in industries outside o nancial services who have examples
o successul and interesting innovation. As much as bankers want to
hear rom other bankers and they do theyre oten more inspired
by executives rom companies and industries outside o nancial
services. Weve worked hard to bring in these perspectives that will
be provocative and stimulating, yet having applications to nancial
services rom a dierent perspective.
I nonbaners are seaing at a baning conerence,
what about the reverse? What might baners have to say
to eole in other industries at this oint?
BIANUCCI: Ill make a prediction. In the not-too-distant uture,
there will be banks that will be held up as having navigated the
storm to recover and strengthen their brand to new high levels. The
industry has been damaged over the past ew years by a decline
in consumer trust and condence. But based on what banks are
doing today, I believe that there will be some organizations that are
very successul and they will be held up as case studies o how to
navigate challenging conditions to build a stronger brand in the end.
Think about how the Tylenol brand has been described or what it
achieved in rebuilding its brand. We are going to see similar success
stories in banking side. It s just a matter o time.
State Ban o India will be resenting at BAI Retail Delivery
about its deloyment o TCS BaNCS Core Baning. What
lessons can baners learn rom this groundbreaing
imlementation?
BIANUCCI: A conerence o this size and scope has a mix o
megabanks, large regionals, regionals, super-community and
community banks, and we have participants rom all over the
world. When were talking about one o the largest core banking
implementations in the world, our responsibility is to nd ways to
make the insights valuable to a diverse audience.
What weve ound with smaller nancial institutions is that they
very much want to hear whats going on in larger organizations,
even though the experiences and approaches may not completely
and directly translate. In act, we nd that executives o smaller
institutions are very interested in learning rom trends in larger
organizations, oten more so than in researching banks o similar
size. Theyre very smart about guring out how to adapt these
perspectives to their own environments, whether in terms
o technology, marketing, sales, channel strategy or product
management.
With all o the talent changes that have happened in this industry,
especially over the past ew years, many smaller banks are being
led by people who used to be at very large organizations. These
executives are looking to make an impact, and have a great deal o
interest in learning whats going on in larger nancial institutions
around the world.
CHINEA:This conerence is all about thinking outside the box. Im
looking orward to the session, and am condent that there will be
things we can learn that we can apply to our own services and delivery
channels. n
Manuel A. Chinea
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briefng
Whats your assessment o
the current maret or wealth
management services?
Although the levels o global wealth or
high-net-worth individuals (HNWIs) rose
almost 19 percent last year, those gains
have not yet erased prior-year market losses
rom the economic downturn. Nevertheless, the
total population o HNWIs has nearly recovered
to earlier levels. The recovery has been led by
the Asia-Pacic region, which now has 3 million
HNWIs, equivalent to the European HNWI popu-
lation (Source: Capgemini/Merrill Lynch 2010
World Wealth Report).
For wealth management rms, the signi-
cance o these gures is twoold.
First, judging rom its rapid rebound, we can
expect the global HNWI population to continue
expanding globally, leading to expanded rev-
enues in the wealth management sector over-
all. This will generate increased interest in the
wealth management sector by nancial services
rms o all types.
Secondly, the line between mass afuent cus-
tomers and HNWIs has become blurred, as uc-
tuating portolio values may cause an individual
to cross arbitrary distinctions rom one year to
the next. This creates a challenge or nancial in-
stitutions to handle these transitions graceully,
such that someone with rising wealth receives
progressively higher levels o service, while
those acing temporary setbacks are migrated
seamlessly to lower-cost, automated channels.
These market trends indicate the need or
convergence between rms that have historical-
ly supported mass afuent customers and those
that have supported HNWIs. From this conver-
gence, we expect to see intensied rivalry in the
wealth management business, with more rms
chasing increasing numbers o HNWI individuals
while also seeking greater market share among
mass afuent customers. The strategic stakes are
high, as the long-term prospects are limited or
rms that are shut out o the higher end o the
nancial services market.
For these reasons, we believe that the key to
success will be the ability o nancial institu-
tions to provide a ull-service menu o wealth
management options across the wealth scale,
spanning geographical regions, and careully
matching products and services to customer
needs. Firms that have traditionally been con-
sidered asset managers, portolio managers and
nancial advisors should be prepared to work
with customers across the wealth spectrum, us-
ing technology to provide integration between
verticals and lines o business.
How has increased interest in the
sector aected ricing models?
A
s greater numbers o integrated, multi
line nancial services providers bolste
their wealth management oerings
they will have greater exibility on pricing vis
-vis nancial services rms that operate at a
greater distance rom their wealth managemen
arms.
For example, some nancial services rms are
essentially resellers or wealth management pro
viders, receiving commissions rom the manu
acturer or sales to their own customers. These
institutions are relatively constrained in how
they can adjust their pricing levels.
Firms with stronger integration between thei
wealth management portals and other nan
cial services, such as retail banking, insurance
and commercial banking, can set prices based
on bundles and tiers o service. This capability
enables rms to provide competitive pricing in
highly-contested market segments, while in
creasing protability in areas with high per-
ceived customer value.
Finally, rms that have aggregated accurate
inormation about their customer relationships
can institute customized pricing based on nar
row customer segments. For example, HNW
individuals paying an annual ee or personal
ized advisory service may receive a bundle o
ree services or which other customers would
be charged. Similarly, mass afuent clients can
be oered options that include dierent mixes
o online sel-help and paid consultations with
nancial analysts.
WEALTH
MANAGEMENTQ&A with Vija RamachandranHead Presales and Strategy TCS BaNCS Wealth Management,
TCS Financial Solutions
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13
Starting with these portolios, wealth manag-
ers can layer additional advisory and research
services or HNW and UHNW individuals. Custom
planning combines programmatic simulation
techniques, such as Monte Carlo simulations,
with hands-on, experience-based approaches
to scenario evaluation.
Even via sel-service and online tools, HNW
and UHNW individuals receive higher levels o
personal service. Mass afuent customers may
receive advice and inormation almost exclu-
sively via sel-service capabilities, while HNW
and UHNW are provided with dedicated support
resources along with sel-service options that
open up a channel or personalized messages
and advice.
How should frms resond to
increasing levels o fnancial
sohistication among clients?
This is indeed a challenge. As clients ge
more sophisticated about their nancia
aairs, they require better quality advice
At the same time, theres a greater propensity o
clients to disregard that advice, even when its
entirely in their best interests.
The best approach starts even beore the in
dividual becomes a client. During the sales pro
cess, advisors should prepare a complete plan
or prospects that includes a clear explanation
o the rms investment processes and controls
Customer trust has to be earned, and transpar
ency is an essential element.
Transparency runs both ways, as clien
should be willing to provide the details o thei
total holdings in order or wealth managers to
come up with an optimum investment plan. In
turn, rms should be realistic about the needs
o clients having multiple wealth managemen
providers, and be well-prepared to capture the
details o their held-away assets and l iabilities.
Clients receive numerous benets rom mu
tual transparency. Drawing upon a total picture
o client assets, wealth managers can build
structured products that cater to the specic
nancial planning and tax needs o an individua
or amily. Whether or tax planning, estate plan
ning, trust planning or management o a amily
oce or wealthy amilies, the ability to capture
complex inormation rom dispersed sources is
a key criteria to improved service and a critica
driver o superior returns to clients.
The line between mass auent customersand HNWIs has become blurred
due to fuctuating portolio values.
How can a frm adequately serve
dierent customer segments in
wealth management?
The rst step is the segmentation process
itsel, which captures the dynamics o
the local market, the global investment
climate, and the clients own expectations. Accu-
rate segmentation can be a strategic advantage
or wealth management providers in growing
revenue.
Given the blurred boundaries between mass
afuent and HNWIs mentioned earlier, instead o
basing segmentation on a single snapshot view
at the time o onboarding, wealth management
rms increase their exibility by tracking seg-
mentation dynamically. In this area, TCS BaNCS
has deployed heuristic algorithms originally
developed or anti-money laundering to moni-
tor client inormation and transactional trends,
resulting in the ability or rms to know precisely
and immediately when customers move rom
one wealth range to another. In todays market,
dynamic customer segmentation has become
an imperative.
The CRM module o TCS BaNCS Wealth Man-
agement includes nancial proling capabilities
that may be used to suggest the most appro-
priate market segment or customers based on
their total nancial prole. Advisors and wealth
managers can capture inormation about clients
risk appetites and build a model portolio based
on historical evaluations o perormance trends
by asset class, key perormance indicators such
as volatility, and cross-instrument correlations to
ensure portolio diversication.
23
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What stes can a frm tae to ensure
that its wealth managers and
advisors are ollowing relevant rules
and regulations aroriately?
The wealth management industry is heav-
ily regulated, and the line between advice
and sales has been clearly demarcated.
More than that, the long-term viability o a rm
depends on its ability to oster an environment o
trust, such that the institution is working toward
its clients best interests. As a oundation, advi-
sors must recommend products based only on
suitability to the client, not based on protabil-
ity to the advising institution. These elements o
the wealth management business are not only
global best practices, but common sense and
good governance.
Increasingly, rms are responsible or ensuring
consumer protection, such as in Europe with pro-
visions o the Markets in Financial Instruments Di-
rective (MiFID). Firms can and should go beyond
the legislated requirements, providing clear dis-
closure o results and operating practices to give
investors and regulators added condence in
rm operations. For example, wealth managers
can report portolio perormance in accordance
with Global Investment Perormance Standards
(GIPS), which use time-weighted rates o return
as well as money-weighted rates o return. Al-
though GIPS are voluntary standards, it greatly
benets both rms and the broader industry to
embrace their adoption.
To prevent unauthorized activities and to
meet the compliance expectations o regulators
across several jurisdictions, wealth management
rms must be equipped to produce ull audit
trails, with usage logs that track every transac-
tion made by every single user o the system.
Also, rms with HNWI clients are under extraor-
dinary pressure to maintain the highest levels o
inormation security, with role-based privileges
that ensure client privacy.
At the same time, regulators expect scrupu-
lous compliance with anti-money laundering
legislation, which requires technology to moni-
tor individual transactions, total account activity,
and patterns occurring throughout an organiza-
tions global ootprint.
Careully-designed business processes also
ensure overall compliance. By preventing out-
o-sequence activities, rms can ensure that
their advisors and wealth managers are acting
in a way that best reects upon the integrity o
the rm and its duciary responsibilities to its
clients.
All o these compliance-related steps have a
technology component, and TCS BaNCS has
strong capabilities in each o these areas.
How can frm management and
advisors stay on the same age
regarding client status?
This is an issue o data quality and process
control. Clearly, you dont want a wealth
manager keeping one set o books o
a customer and another set o books or man
agement. But its also harmul to the rm when
management has insucient insight into the le
gitimate activities o its wealth managers. That