bancs newsletter 10th edition 10 2010

8/3/2019 BaNCS Newsletter 10th Edition 10 2010

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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


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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

[email protected]

www.tcs.com/bancs

FROM THE EDITOR

letter


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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.


10/2810

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.


demonstrated their brandpromise throughout this

mission-critical implementation.


11/2811

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.


12/2812

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


13/28

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.


14/2814

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.


15/28

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


16/2816

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,


Jeanne W. Ross


17/28

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


18/28

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


19/28

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


20/2820

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


21/28

21

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


22/2822

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,



23/28

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.

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24/2824

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

bancs newsletter 10th edition 10 2010

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