2010 Number 10

iNTELLigENT ALCHEmy

LCH.CLEARNET launches Synapse, powered by TCS Ba NCS

ALSO iN THiS iSSUE l SEI Investments Distribution Co. l MIT Center for Information Systems Research

l Liquidity in the Asian Capital Markets l BAI Retail Delivery Report l Assessment of the Wealth Management industry
Experience certainty. IT Services Business Solutions Outsourcing

Visit us at Booth A625

Visit us at Booth 415

by N. Ganapathy Subramaniam President TCS Financial Solutions

PREPARING FOR THE DECADE AHEAD

Drawing upon the breadth and depth of resources within Tata Consultancy Services, TCS Innovation Labs provide clients with roadmaps to deployment-ready technologies and business models that combine the specific features of financial services with the best business practices from outside of the industry. This years SIBOS in Amsterdam focuses on the themes of regulation, rebuilding trust, and recovery; all of these themes are works-in-progress for the industry. While governments have already taken action to institute more comprehensive controls over the banking system, the specifics and implementation details of new regulations have yet to be hammered out. Similarly, the process of 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 framework for an updated financial infrastructure. From these themes, most financial institutions look at the following as their key priorities for the future: l Growth: Whether by expansion into new markets, initiatives in client acquisition and retention, or launch of specific products, growth in all of its forms contributes to revenue and margin improvements. l Effective Execution: Ways and means to increase volume across multiple markets and businesses, with a clear

During the last months of 2010, it is worthwhile to reflect upon the events of the past decade while also looking ahead to what we may discover in the decade to come. In working through its recent challenges, the financial services industry has already embarked upon a remarkable transformation. As the results of this transformation become evident over time, the economic benefits of a stronger and healthier financial system are certain to accrue both to the corporate sector and to households and individuals. Furthermore, people within the financial services industry itself will be able take justifiable pride in regaining the public trust in terms of fiduciary responsibility and stewardship of the global economy. The themes of both SIBOS in 2010 and BAI Retail Delivery reflect this industry-wide transition to a more robust, responsible and resilient financial system. At BAI Retail Delivery, the agenda revolves around the search for sustainable growth by enhancing the customer experience through self-service, business intelligence, and core banking innovation. It is also noteworthy that BAI makes special efforts to include non-financial perspectives in its conference keynotes, as lessons and business practices from outside the industry have enormous value for practitioners in financial services. TCS Financial Solutions takes a similar approach through our work with TCS Innovation Labs.

The process of rebuilding trust has already begun, but the results will be visible in years rather than months.

focus on reducing cost per transaction. l Speed: The ability to decrease time-to-market for the delivery of client services as well as technology enablement is an essential component of aligning the other priorities of Growth and Effective Execution. To that end, TCS BaNCS provides the ideal foundation for 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 wellprepared for the decade to come. In this issue, you will find two case studies that exemplify our collaborative, team-based approach. First, in our cover story, we describe LCH.Clearnets recent launch of Synapse, powered by TCS BaNCS, which now supports the ongoing operations and growth potential of the London Metal Exchange. In the emerging regulatory environment, the clearing function has become an essential component of the global financial infrastructure. The collaborative development of Synapse supports LCH. Clearnets advantageous strategic positioning in the clearing marketplace, establishing a clear pathway to rapid development and future growth. We are extremely humbled by the commitment and support demonstrated by the senior management of LCH. Clearnet, LME and TCS to realize and deliver a program of

this scale and complexity. The collaboration, dedication and flexibility of the teams on the ground ensured the deployment was smooth and successful. This has not just laid a foundation for 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 beneficial operating model in the years to come. In our second case study, we return to our esteemed client SEI. Last year, we profiled the launch of SEIs Global Wealth Platform, a solution for wealth managers with global assets that combines investment management, processing and advice. Concurrently with the collaborative development and launch of SEIs Global Wealth Platform, TCS Financial Solutions also supported SEIs broker-dealer subsidiary, SIDCO, with the launch of a groundbreaking agency brokerage solution having improved customer workflow and functionality. We are grateful for the opportunity to support SEI in meeting its goals across multiple lines of business, and for the vision and dedication shown by SEI executives and staff members. On behalf of TCS, I would like to sincerely thank the management teams and executives of both LCH.Clearnet and SEI for their participation and inputs in these exemplary case studies. n

letter

FROM THE EDITOR

Welcome to the tenth issue of TCS BaNCS! In 2007, TCS Financial Solutions was launched as a strategic business unit of Tata Consultancy Services. Although TCS Financial Solutions was a new name in the industry, our capabilities were built on a foundation of experienced talent with deep subject-matter and domain knowledge, backed by the extensive resources and delivery excellence of TCS. We also created a new brand for our already very successful suite of solutions for banking, capital markets and insurance TCS BaNCS. Building a brand is never easy. Naturally, it takes more than a few sentences to explain the unique value propositions of TCS Financial Solutions as the strategic business unit of a major global services, BPO and consulting firm having our comprehensive set of business solutions across multiple verticals within financial services. Fortunately, we have had amazing allies in our efforts to get the word out about TCS Financial Solutions and TCS BaNCS: A highly-satisfied 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 industry influencers, as well as distributed at industry events including SIBOS and BAI Retail Delivery (see page 20 for our interview with BAIs CEO along with one of the bank executives who organized the conference). In our first nine issues, weve featured 27 in-depth customer stories, representing an amazing range and diversity of financial services businesses across Africa, Asia, Australia, Europe, North America and South America. In this issue, we add two more stories to the list and theyre big ones LCH.Clearnet (see page 6) and SEI Distribution Company (see page 12). Both of these prominent organizations granted us extensive access to their executive teams, sharing their perceptive insights on the strategic rationales for their business initiatives, their innovative approaches to sourcing and collaboration, and best practices from implementation. We hope that these case studies offer value to readers not just as a record of our past accomplishments, but also as examples for organizations facing similar challenges. In this approach, were moving toward the content model of the MIT Center for Information Systems

Research (see page 16), which layers high-level insights on top of onthe-ground case studies. Three years and ten issues later, the TCS BaNCS brand no longer needs a lengthy introduction. Our activities are followed closely by participants in the financial services industry and by the top analyst firms in banking, capital markets and insurance (who also regularly contribute BaNCS Research Journal). Were ranked #6 in the FinTech 100 (as of to the TCS BaNCS Newsletter and to Promontory, the excellent TCS

2008 and 2009, up from #10 in 2007 and #13 in 2006), were near the top of the IBS Sales League Tables, and Gartner just named us as one of the Leaders in their latest International Retail Core Banking report (see page 27). For this recognition throughout the industry, we have only our clients to thank. We often hear from clients that have been profiled in previous issues of 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 of these positive outcomes as the result of our efforts in the TCS BaNCS Newsletter, and to our clients and business partners, we warmly welcome and encourage your involvement in the next ten issues of TCS BaNCS and beyond. Until next time

Dennis Roman Editor-in-Chief Chief Marketing Officer TCS Financial Solutions 954 423 3560 office 954 806 6660 cell dennis.roman@tcs.com www.tcs.com/bancs

CONTENTS
6 2 Looking Ahead
N. Ganapathy Subramaniam on the decade to come.

6 Cover Story: A Partnership Forged in Steel

LCH.Clearnet intends to become the premier multi-asset clearing house in the world, with TCS as a strategic partner.

12 Case Study: Soft Dollars, High Profits

SEIs agency brokerage attracts order flow through sophisticated handling of soft-dollar commissions.

16 Intelligence: MIT Center for Information Systems Research

Academics gather insights from experienced IT practitioners to develop enterprise-focused research.

18 Capital Markets: Looking for Liquidity In Asia

Will dark pools transform the Asian equities markets? If so, when?

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20 Interview: BAI Report

BAIs CEO and a banking executive on the BAI Retail Delivery planning committee discuss retail banking trends.

22 Briefing: 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 Infrastructure announcements; photos from TowerGroup and SIFMA; and upcoming events.

About TCS Financial Solutions

TCS Financial Solutions is a strategic business unit of Tata Consultancy Services. Dedicated to providing business application solutions to financial institutions globally, TCS Financial Solutions has compiled a comprehensive product portfolio under the brand name of TCS BaNCS. Our mission is to provide best of breed solutions that will drive growth, reduce costs, mitigate risk and offer a faster speed to market for our clients. With a global customer base in excess of 240 institutions operating in over 80 countries, TCS Financial Solutions delivers state-of-the-art software solutions for the banking, insurance and capital markets industries worldwide. For more information, visit us atwww.tcs.com/bancs.

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About Tata Consultancy Services

Tata Consultancy Services is an IT services, business solutions and outsourcing organization that delivers real results to global businesses, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. A part of the Tata Group, Indias largest industrial conglomerate, TCS has over 160,000 of the worlds best trained IT consultants in 42 countries. The Company generated consolidated revenues of over US $6.3 billion for fiscal year ended 31 March 2010 and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at www.tcs.com.
Copyright 2010, TCS Financial Solutions. All rights reserved. No part of this publication may be reprinted or reproduced without the written permission from the editor. TCS BaNCS 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 for any damages on any information provided within the magazine. The information is provided to outline TCS BaNCS general product direction. The editorial is to be used for general information purposes. The development, release, and timing of any features or functionality described for TCS Financial Solutions products remains at the sole discretion of TCS Financial Solutions.

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cover story

LCH.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 Infrastructure, TCS Financial Solutions
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 financial markets, clearing a wide variety of financial instruments across trading venues. In 2003, LCH merged with Clearnet, which was the clearing house for all products traded in the European Euronext markets. The resulting company, LCH.Clearnet, brought on new exchange customers and began clearing additional asset classes, spreading its geographical reach, and playing an increasingly critical part of the global financial infrastructure. 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 frozen in its tracks, freight brokers were going bankrupt, and the commodities markets were undergoing unprecedented volatility. That was a huge call for the marketplace to make sure that they had clearing houses to stand between counterparties, says Alberto Pravettoni, Managing Director, Commercial Services, LCH.Clearnet, who had worked extensively with clearing organizations during his earlier career with Goldman Sachs and Citibank. CCPs with the right technology and processing solutions have important repercussions for the real economy. When counterparties to failed banks found themselves gasping for air on the wrong end of failed trades, the resulting chaos threatened to bring down the global banking system. Accordingly, regulators and politicians around the world have promoted an increased role for clearing houses. The ministers of
Jonathan Moffat Paul Ramanath Orlando Chiesa Alberto Pravettoni

A PARTNERSHIP FORGED IN STEEL

SyNAPSE:

finance in major countries of the world have been calling for all of these OTC derivatives to be centrally cleared, explains Pravettoni. Banks will face hefty capital charges for 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 of experience clearing OTC derivatives and the only one to have managed a member default in a large OTC market, LCH.Clearnet is in a strong position to benefit from the move towards increased OTC clearing. We have a very substantial business in interest rate swaps, were building what we hope will be a substantial business in foreign exchange, and we have launched a business in credit derivatives in Paris, says Pravettoni. Yet these new revenue opportunities have also heightened the competition for clearing services. LCH.Clearnet competes with several other clearing houses globally, including the clearing arms of major exchanges. Even before the recent regulatory focus on OTC derivatives, regulators have been aiming to restructure the competitive environment in the capital markets. Chief among these efforts has been the Markets in Financial Instruments Directive (MiFID), a European Commission initiative that not only increased competition in trading, but that also brought about higher levels of competition in equity clearing. In this increasingly competitive environment LCH.Clearnet will have to continue to innovate and build strong strategic relationships across all the asset classes and markets it serves.

DISCOVERING ALCHEMY
LCH.Clearnet began clearing futures and options on commodities for 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 affecting LME as well as its member firms, both in operations and on their trading floors. LCH.Clearnets legacy system had become out of date and cumbersome. Also, for the operations teams at LME member firms, the system lacked sufficient straight-through processing capabilities, making it difficult for commodities trading firms to integrate clearing data into their internal systems. In 2007, LCH. Clearnet began searching for a new solution to serve LME. One of the core criteria was that the solution couldnt be the intellectual property of a competitor in the clearing business, and this ruled out using any of 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 freely across markets, says Pravettoni. We had a strong desire to partner with somebody with whom we could feel comfortable as a long-term partner. The search for a partner led directly to TCS Financial Solutions and TCS BaNCS Market Infrastructure. Following a competitive RFP process, TCS were chosen due to a combination of reasons including pre-existing clearing software, domain experience in our sector, and in particular, their commitment to deliver, explains Jonathan Moffat, Director, Group Sourcing And Supplier
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tained the project throughout. The LCH.Clearnet executive team recognized that TCS Financial Solutions offered the industry presence and expertise to deliver a strong solution. TCS is very active in the financial services industry, observes Pravettoni. Given their track record and the quality of the organization, we were very comfortable that TCS Financial Solutions would be a very good partner for us. It was a straightforward decision to go with TCS, adds Pravettoni. Still, the selection of TCS Financial Solutions was a big deal for LCH.Clearnet. It was the first time for our organization to engage with a provider outside of the City of London or not based in Paris, where we have our other operating entity, says Pravettoni. Not only was it the first offshore development deal for LCH. Clearnet, but it was also an IT project with a greater scope and complexity than had ever been attempted in the history of the organization. The legacy system, despite its age, contained business logic accumulated over two decades of working with dozens of LME clearing members, and that functionality had to be maintained. The members had to be insulated from having to make significant changes, even while enabling rollout of new products. These requirements had to be absorbed on the development end.

MELTING THE BARRIERS

The project, branded as Synapse, powered by TCS BaNCS, kicked off in January 2008. At various points during the project, from 80 to 100 consultants from TCS Financial Solutions were dedicated to LCH.Clearnet, making it one of the largest mission-

Management, LCH.Clearnet. This last factor proved to be crucial during the subsequent delivery phase of the project and sus-

critical implementations performed by TCS Financial Solutions in the capital markets vertical. To steer the solution mapping and operational deployment of the project to a successful completion, LCH.Clearnet brought on Orlando Chiesa, who during his tenure with UBS built up an entire global futures and options clearing service. Chiesa left UBS in 1999, and then worked with a competing clearing house, Eurex, before joining LCH.Clearnet in early 2009 in the role of director responsible for development operations and risk. The requirement for Synapse to replicate existing functionality increased the level of effort by an order of magnitude, resulting in a catalog of thousands of pages of business requirements specifications, Chiesa relates. The scope we had been given, Build it as the business knows it today, definitely made it more complicated. As the project progressed, both parties realized that working more closely together could deliver some real benefits. Up until that point, the two teams communicated mostly through dry business requirements documents, with limited personal contact and collaborative development. In September 2008, the key people from LCH.Clearnet and TCS Financial Solutions held a three-day workshop where they made critical decisions on how they would capture requirements in the future. Our lesson learned was first to build a culture, and take the time to work around a desk rather than on paper, says Chiesa. Workshops became increasingly important. Its a people business, adds Chiesa. Even though its software development, the results heavily depend on how people work

together, how they react to one another, 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 production people, our developers, business analysts, business users and risk management people. Initially, it took a bit of nurturing 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 for collaborative testing and development. Things changed drastically on a personal level, and long-term relationships developed there, says Ramanath. When that happened, we saw that a successful outcome was inevitable. We learned that its very important to move people through both sides of the delivery team, observes Ramanath. Ultimately, the close teamwork paid off handsomely. TCS and LCH.Clearnet worked as one team with the sole aim of making the project a success, reports Ramanath. Throughout the project, everyone stayed positive and focused towards the common goal of a successful deployment. Board members and company executives also spent time with TCS Financial Solutions executives, crafting business strategy and responding to issues on the ground. There was never a question about support at the top levels of management for driving the whole relationship forward, relates Ramanath. The
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senior management team genuinely wanted to know what they could do to make this work.

TCS and LCH.Clearnet worked as one team, with the sole aim of making the project a success.

SOLID FOUNDATION
LCH.Clearnet deployed Synapse for LME in late July 2010. One of the production managers here said that it was perhaps the most uneventful deployment he had ever seen, relates Ramanath. When you bear in mind the size and complexity of the project, it was extraordinary. The fact that it went through so smoothly, is something thats recognized as important by the whole team and the entire organization, adds Ramanath. Im very proud of the outcome. To start, LME will quickly benefit from increased competitive agility. Synapse gives the ability to launch more quickly, says Pravettoni. Well be able to launch bullion contracts for LME in November 2010, which is a validation of the flexibility that we have in the system. Synapse has flexible configuration options that enable LME to add new commodities derivatives, quickly and easily. Synapse can handle new derivatives on base metals and other standard commodities within the space of a few days. Its just a little bit of testing with the members and our downstream systems, explains Chiesa. The setup of the product itself, I can do in the space of a coffee break. LME can earn revenues much faster and gain momentum with new products, adds Chiesa. LMEs 40 clearing members, who collectively hold approximately 1.8 million trade positions and have an average trade volume of 30,000 trades per day, also benefit greatly from Synapse. Throughout their operations, they now have advanced support for business processes related to derivatives clearing, including trade and position management, transfers and adjustments, bulk transfers, and settlements. In addition, Synapse enables lower operational costs through straight-through pro-

cessing of clearing data, using the XI+ messaging protocol for trade feeds, notifications, and inquiries. TCS BaNCS Market Infrastructure has fully STP electronic interactions with clearing members, says Chiesa. Synapse also supports last-minute trading decisions by commodity traders, who often need to hold off on options declarations until expiry. Weve had very positive feedback from members on the usability of the system, particularly around options declaration, an area that theyre very sensitive about, says Ramanath. We are now harvesting a swathe of benefits as a result of this strategic implementation, said Martin Taylor, Group CIO, LCH. Clearnet. This browser based, user friendly system brings in a high degree of comfort and compliance among the member organizations while enhancing our flexibility and agility in embracing business challenges. TCS Financial Solutions demonstrated their brand promise throughout this mission critical implementation, adds Taylor.

TCS Financial Solutions demonstrated their brand promise throughout this mission-critical implementation.

BUILDING ON SUCCESS
Now that LME has gone live, the work of achieving broader competitive advantage in the clearing marketplace can really 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 model, the TCS development team has already begun work on of the next iteration of Synapse, which will be ready in early 2011. The new version will be based on the latest version of TCS BaNCS Market Infrastructure, updated with the custom components of the code base now live at LME. There has always been debate in the industry about the real value of relationships or partnerships between suppliers and customers, but this has been a testament to its power, remarks Moffat. The combination of a demonstrated commitment to delivery and the commitment to LCH.Clearnet from the management of TCS has been the basis upon which the scope of services from TCS has now grown substantially beyond the initial engagement. The next version of Synapse will provide the ultimate level of flexibility in account structures for both position accounts and margin accounts. Instead of just being able to open a clearing account for their own transactions, clearing members will be able to establish sub-accounts for each of 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 flexible range of options for cross-border clearing relationships. This enables final beneficiary 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 for margin accounting, which can be kept on either a segregated or non-segregated basis according to the local regulations of the commodities trader. You can even provide margin calculations for clearing members so that they dont need a back-office system at all, as they can rely upon the clearing house to calculate their margins according to their own methodologies, observes Chiesa. This is new ground not just in commodities derivatives, but in the clearing business overall. The industry today has systems which allow firms to do just what the rules and regulations say, but they have very limited flexibility, says Chiesa. I havent seen any other clearing system at any other clearing house that has the accounting flexibility of 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 of that system and onto Synapse, says Pravettoni. Im very comfortable about where we are now, and I can see that TCS was definitely the right decision for LCH.Clearnet, remarks Pravettoni. I have very high expectations that what weve built over the past two years with Synapse is just the first step in deepening our relationship. The role of TCS is central to developing our strategy. We have developed an excellent relationship with TCS and see them as important strategic partners in the development
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of our technology solutions, remarks Roger Liddell, Chief Executive, LCH.Clearnet Group.

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FAST FACTS
The London Metal Exchange, the worlds premier base metals market, offers metals price risk management tools including futures and options contracts for 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 of trading was $7.41trillion and the Exchange currently has 5.96m tonnes of material on warrant in 633 storage facilities across 39 locations globally. LCH.Clearnet Group is the leading independent clearing house group, serving major international exchanges and platforms, as well as a range of OTC markets. It clears a broad range of asset classes including: securities, exchange traded derivatives, energy, freight, interest rate swaps, credit derivative swaps, and euro and sterling denominated bonds and repos; and works closely with market participants and exchanges to identify and develop clearing services for new asset classes. LCH.Clearnet Group Ltd is owned 83% by users and 17% by exchanges. Below, from left to right: Michael Bischoff (Director, IT Dev and Production) Allan Mycroft (Director, IT Systems Integration) Jonathan Moffat (Director, Group Sourcing and Supplier Management) Martin Foakes (Commercial Manager) R Vivekanand (Global Head, Market Infrastructure, TCS FS) Alberto Pravettoni (MD, Commercial Services) Chris Tupker (Chairman of 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 of BFS Europe Industry Solution Unit, TCS) Sunil Chopra (Global Head of BFS Sales, TCS)

AT A GLANCE
Company: LCH.Clearnet Group Ltd. Headquarters: London and Paris Business Challenges:

To clear all commodities derivatives trades for the London Metal Exchange
and its members on a single platform.

To enable the rapid launch of new products in new markets,

with customizable clearing services. Solution: TCS BaNCS Market Infrastructure supports the entire range of commodities derivatives trading for London Metal Exchange, while providing LCH. Clearnet with a strong foundation for further growth across other asset classes. The component-based, n-tiered J2EE architecture is built on a technology stack including Sun Solaris, Oracle, and Weblogic.

Strategy meeting between LCH.Clearnet and TCS, in India.

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case study

SEIs agency brokerage attracts order flow through sophisticated handling of soft-dollar commissions
By D. K. Tiwari, Global Program Head, TCS Financial Solutions

SOFT DOLLARS HIGH PROFITS

DISTRIBUTION above a given volume threshold will go to one marketplace, while trades in a given stock will be sent to another marketplace. All of these changes are technology-driven, and we have to be prepared to support the increased range and diversity of our clients trading partners, adds Chou. Stemming from the broader range of execution venues, one of the trickier challenges for an agency-based broker such as SEI is handling the various ways in which commissions are calculated, paid and allocated. Although investment managers at mutual funds, banks, and advisory firms can execute equity trades through any registered securities broker, their fiduciary responsibility to investors requires that they select a broker-dealer for any given trade on the criteria of best execution, a combination of speed, price and execution quality that maximizes the value of client portfolios. As part of these best-execution criteria, the

SEI (NASDAQ: SEIC), acts as an agency-based broker for banks, investment managers, endowments, foundations, insurance companies, and plan sponsors. SIDCO does not trade on its own account, but rather provides best-execution services to equities market participants across multiple trading venues. In todays market, investment managers rely upon a wider range of execution venues than ever before. The ongoing evolution of trading has resulted in more orders migrating from traditional trading venues to new liquidity venues, such as dark pools and broker-sponsored entities, says Maxine Chou, SIDCOs CFO, Treasurer and COO, who has executive supervisory responsibility for all of SIDCOs financial and operational matters. Investment managers are designing order handling rules such that trades

SEI

INVESTMENTS

U.S.Securities and Exchange Commission (SEC) allows the use of soft-dollar arrangements, in which broker-dealers allocate a portion of their commissions to pay for qualifying research or brokerage services on behalf of investment managers.Eligible research or brokerage services under the SECs safe harbor rule are those services that assist in investment decision-making, where the amount paid is reasonable considering the value provided. For example, investment managers can use their soft-dollar accounts to pay for research reports on a given stock or industry, consultations with research analysts, or subscriptions to securities-related data services. Also permitted is the use of soft dollars to pay for brokerage transactions, clearing, settlement, custody, and post-trade services. When paying for eligible research and brokerage services, investment managers tend to prefer soft-dollar arrangements rather than hard dollars, which have to be included as a separate

COMPANY (SIDCO), the broker-

dealer arm of Oaks, Pa.-based

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line item on a profit and loss statement. Investors also benefit from this dynamic, albeit indirectly, as it ultimately results in a wider pool of investment managers, and also because the expanded use of research supports a stronger community of independent research providers than would exist otherwise. Under guidelines issued in 2006, qualifying research can be sourced from third-party providers, rather than just from the research arm of the broker-dealer as was typically the case in the past. But the unbundling of research and trading has created a new set of challenges in tracking soft-dollar balances across multiple broker-dealers, instructing broker-dealers to pay invoices to multiple research providers, and appropriately budgeting for research expenditures.

you generate excess soft 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 commission, but until its used youre not getting any benefit from that commission, says Barr. On the flip side, if 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, soft-dollar budgeting isnt something that you can set at the beginning of the year and then forget about it. Everyone comes up with a soft-dollar budget based on the expected order flow, Barr explains. But trading volumes are unpredictable. Ideally, investment managers should be able to recalibrate their budgets based on their daily trading activities. Most people develop a soft-dollar budget and then allocate expenses against that budget, says Barr. If theres a mismatch between soft dollars and expenses, they want to know up front.

Unless you have a handle on your soft dollars, you cant understand how much youre paying for specific research.

SOfT-DOLLAR SPECIALISTS
For SIDCOs customers, soft-dollar payments have strategic importance. Aside from personnel costs, research is typically one of the largest components of a money managers P&L, says Kevin Barr, President and CEO of SIDCO and also unit leader of the Investment Management Unit at SEI. Unless you have a handle on your soft dollars, you cant understand how much youre paying for specific research. Customers pay close attention to how they can use soft dollars to pay bills that otherwise would have to be paid for out of the profits of the company, explains Barr. Youre trying to budget it so that your expenses exactly match your soft-dollar deposits. There are two types of inefficiencies that might happen in soft-dollar budgeting. First, if

STAR POTENTIAL
In 2005, SIDCO quickly recognized the information management challenge of soft-dollar accounting as a business opportunity with high profit potential. At the time, the soft-dollar regulations were in flux. When we started looking at how the industry approached soft-dollar transactions, we realized that there werent any good technology 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-

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missions on an AS/400 legacy platform. It was fairly inflexible when it came to making adjustments 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 for SIDCO employees and customers. Customers would have to fax their invoices to SEI, and then manually confirm with an accounting rep which ones they wanted to be paid, says Kynett. Then, theyd have to call in to check their balances to see if they had enough money in their soft-dollar accounts. In addition, connecting to each broker-dealer required significant IT resources and custom programming to capture the various feeds and file formats in use. The lead time to figure out the normalization and any other programming that needed to happen around those feeds was fairly lengthy, a couple months in total, says Kynett. The developers would have to go back and forth with each new broker before we could finally get it right. TCS had already been on-site since 2003 working on SEIs Global Wealth Platform (see TCS BaNCS issue #7). In August 2005, the SIDCO team first sat down with TCS. We looked at TCS BaNCS to see if its flexibility and client-server architecture would meet our requirements, which in fact it did, says Kynett. We were able to select TCS BaNCS as the building block for a new brokerage commission system. Just ten months after the initial meeting, SIDCO had itself a brand new system, dubbed STAR, built from scratch on the TCS BaNCS foundation. The implementation timeline was very ag-

The STAR system simplifies what had been a laborious chore for investment managers.

A DELICATE BALANCE
The solution captures the details of broker-dealer transactions provided by different counterparties in different formats. TCS helped us design a utility that normalizes the files and then imports into the STAR system, says Kynett. Changes can be made, to a certain extent, without any coding. We can just set configuration parameters, and then the feeds are normalized to the point where the STAR import routines can easily interpret them and load them in. Now, it only takes a few weeks from the technical side to get a new customer in place, adds Kynett. Then, those transactions related to soft-dollar

gressive, said Kynett. Because of the flexibility of the base TCS BaNCS platform and the resources that TCS applied to the project, we were able to meet our milestones on-time. We kicked off the go-live right when we said we would. The fast and professional development process cleared up any initial hesitation about bringing in an external partner. When we started working with a third party, and especially someone from offshore, we were a little hesitant, says John Coary, who administers the STAR systemand handles various financial and regulatory reporting functions in SIDCOs accounting department. It worked very smoothly. We described our business model to TCS subjectmatter experts, and they were able to go back and build the process flows that were needed to create a solution. Everybody worked hard, adds Coary. We converted 1,500 accounts from our legacy system, plus static data, over to the new system in one weekend, which was pretty incredible.

arrangements are placed into a holding queue, and a SIDCO account clerk in the accounting department personally reviews each transaction. Before the account clerk releases the data, they have to reconcile the data in our system and the data provided by the broker, says Maxine Chou. This is a very controlled process. After all the data goes through the gate, we can be sure that no mistakes were made. Clients then receive confirmation that their soft-dollar balances have been updated. At all 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, clients can spend the money in their soft-dollar accounts on qualified expenses under the SECs safe harbor criteria. With their approval, our people here can pay those bills on behalf of a client, and we check to make sure all of the invoices are in compliance with the safe

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Maxine Chou harbor rule, says Chou. The STAR system simplifies what had been a laborious chore for investment managers. Previously, all of that was a manual process, relates Kynett. Theyd have to call in to check their balances to see if they had enough money in their soft-dollar accounts, and then theyd have to fax invoices to SEI and manually confirm with an accounting rep what they wanted to be paid. Now, the clients themselves can log into the system, view their balances, and run reports to see what kinds of transactions theyve done, says Kynett. We import invoices from their vendors directly into the client portal, and the invoice images appear to the client when they log in. The improved workflow means that SIDCO can maintain higher-level relationships beyond handling burdensome paperwork. It has improved our interaction with clients, and improved client satisfaction greatly, says Sherry Wrzesniewski from SIDCOs accounting department. Because of this web application, our clients are no longer completely dependent on SIDCO for access to their own data. Clients can self-serve on their own schedule. Consequently, feedback has been extremely positive. From what weve heard from clients, this is the best soft-dollar commission system theyve seen out there, states Kynett. 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 four years after the rollout, its still a best-of-breed solution in the marketplace, which is testament to the design capabilities and execution capabilities of TCS. With the STAR system, SIDCO maximizes the value of clients trading activities while minimizing their time and effort managing the details. Clients get best execution along with the opportunity to outsource the accounts payable function associated with those activities that are eligible for soft-dollar payment, while retaining control of the approval process, says Barr. In addition to what the STAR system has done for external clients, it has also improved operations, profitability and manageability within internal operations. TCS provided us with superior technology in meeting our business needs, and their excellent service gives us the freedom and time to manage our other businesses, says Chou. TCS enables us to improve our clients services and increase their satisfaction, and we are grateful for that. Even examiners are impressed. When our regulators come in to audit or books, they always ask us different questions, relates Chou. Each time, were always able to provide the information quickly, and our regulators are quite impressed with that ability. The foundation of the STAR system, based on TCS BaNCS, prepares SIDCO for growth in the years to come. Were looking into going global trading securities in foreign countries and foreign currencies, says Chou. Thats an area we can improve upon. Bill Kynett Kevin Barr

AT A GLANCE
Company: SEI Investments Distribution Company (SIDCO), the broker-dealer arm of Oaks, Pa.based SEI, provides brokerage services to banks, investment managers, endowments, foundations, insurance companies, and plan sponsors. Headquarters: Oaks, Pennsylvania, USA Business Challenge: To enable investment managers to use soft-dollar accounts from multiple counterparties to pay for research and brokerage services through an automated online portal. Solution: Custom solution built on TCS BaNCS platform.

RISING STAR
The STAR system has enabled SIDCO to differentiate its agency brokerage business within a highly competitive marketplace. The TCS approach, of bringing in knowledgeable business

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intelligence

Academics gather insights from experienced IT practitioners to develop enterprise-focused research

By Alex Goldrick, Marketing & Communications Manager, Asia Pacific, TCS Financial Solutions

MIT S REAL WORLD RESEARCH

or 36 years, the MIT Center for Information Systems Research (CISR) has focused on its mission of helping practitioners get value from information technology. Tata Consultancy Services is one of eight global companies acting as CISR Research Patron.

MIT CISRs approach combines the rigor of academic research with a real-

world perspective, differentiating them from both traditional industry research firms and academic researchers. Academics will examine interesting questions whether or not they have immediate impacts, says Jeanne W. Ross, CISRs Director & Principal Research Scientist. At CISR, we apply the rigor of academic methodology and apply theoretical underpinnings to our research for practice. MIT CISRs six-person research staff interviews and surveys IT practitioners within sponsoring organizations, which currently include 82 major companies and government agencies, and supplement sponsor data with interviews and surveys at other leading organizations. These practitioners include CIOs, system architects and program managers on the IT side. In many cases, these practitioners can provide MIT CISR with further access to the non-IT people deriving the benefits from IT. When researchers do gain access beyond IT, that fact in itself is an indication of the relative maturity of the IT function of an organization. We see a very great difference from firm to firm in terms of the relationship between IT and the business side, observes Ross. Some IT people say, Sure, which person do you want to talk with, while others say, I dont think anybody will want to talk about IT with you. The holdouts are missing out on a great opportunity. We find that people really enjoy being interviewed, says Ross. Just taking an hour out of a very busy week to think about what youre doing can be very valuable. Plus, all MIT CISR sponsors receive a full complement of research results, including summary briefings, extended case studies, working papers, and presentations based on the interviews. The findings are also discussed with sponsors during interactive sessions.

Graham ramsay; istockphoto

Jeanne W. Ross

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RECENT RESEARCH
MIT CISRs research includes frameworks and models designed to help executives to self-assess and improve the readiness and effectiveness of their own enterprises, including but not limited to IT-related considerations. For example, an August 2010 paper, Achieving Superior Business Value from Digitization: The MIT CISR Value Framework, evaluated the results of 15 years worth of case studies. In doing so, CISR researchers identified four high-level management commitments typical of topperforming firms. The first element is Strategic Choice-making, through which senior executives commit to a specific operating model while at the same time clearly rejecting other possibilities. Strategic choice leads to the second element in the framework, Distinctive Digitization, which describes how well the firms vision is manifested through its IT infrastructure, business process platforms, data assets, and electronic linkages to partners. The third element, Working Smarter, defines how well employees are able to make use of the firms distinctive digital capabilities. Finally, Actionable Assessment is a firm-wide commitment to use business metrics, incentives, and feedback mechanisms to align individual actions and partners contributions with enterprise goals.

ITs NEW LOOK

The different models of IT that have emerged are: 1. Solution delivery ITs major focus is on solution delivery. This is similar to ITs traditional role although delivery might include SaaS or open sourcing. 2. Business process experts IT helps to design and implement end-toend processes and critical business process components; will often include responsibility for TQM and Six Sigma. 3. Revenue generation/innovation IT takes responsibility for digital products and services. 4. Business services IT provides advice, training, standards, policies to business unit managers who maintain control of IT within the business much like HR in firms with a corporate HR function. One of the really interesting aspects of this study is the division of labor between IT and the business for the more digital responsibilities that are emerging in firms. This includes business process design, business process optimization, collaboration and social media, business intelligence and analytics, master data management, strategic vendor management, strategic experiments, and technology evaluation. Our early results show little consensus in how these responsibilities are divided. Jeanne W. Ross

STAGES OF GROWTH
Another MIT CISR research paper described the four stages that companies grow through from an IT perspective. The first, early stage, involves building all of the systems needed to start and grow a business. Then, the second stage imposes discipline on investment decisions and methodology, resulting in defined methodologies for IT management. The third stage optimizes business processes through shared data definitions and standardized business practices. In the final, fourth 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 of new business opportunities such as mergers, geographic expansion and new market entry, says Ross. Companies that reach this fourth stage have increased flexibility to engage in transformative BPO. If your processes are well understood and you can start to componentize them, youll be able to take the best advantage of BPO, notes Ross. You can stop doing things that have no value-add to you internally, and let a partner take that on.

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capital markets

Non-display liquidity venues known as dark pools have transformed the U.S. and European equities marketplaces but when will Asia jump in?
By Shekar Hegde, Head of Pre-Sales, Securities Trading, TCS Financial Solutions
In conjunction with the Asian Banker Summit in Singapore in April, the Markets and Exchanges Convention brought together infrastructure providers, exchanges, broker-dealers, bank treasurers and market heads, fund managers and related financial institutions and counter-parties. At the convention, TCS Financial Solutions participated in a panel titled Delivering sustainable liquidity for a growing Asian market, featuring Bharat Shah, Product Director, TCS BaNCS Securities Trading. Shah shared his perspective on what it would take for dark pools to transform the Asian equities markets in the manner that theyve transformed markets in the U.S. and Europe. The panel, moderated by Zennon Kapron, founder and manager of Kapronasia, a research firm focused on the Chinese financial services market, also included executives from Chi-East, Liquidnet Asia, Nomura Securities and Oliver Wyman. themselves. The ensuing competition has lowered prices and increased efficiency, leading to more frequent trading at higher volumes. Now, non-display liquidity venues are coming to Asia, and Japans equities market provides an illustrative example. At the start of 2010, the Tokyo Stock Exchange (TSE) implemented its new Arrowhead trading platform, which doubled the TSEs previous systems trading capacity while also reducing latency for order acknowledgement from seconds to milliseconds. These changes made it possible for high-frequency traders to operate effectively in the market. In addition, Arrowhead includes support for proprietary trading systems, which gives traders alternate venues for trade execution. There are now six alternative trading venues in Japan driving down trading costs and improving trader participation. In parallel, the Japan Securities Clearing Corporation (JSCC) reduced costs for clearing and settlement, further propelling market activity. Funds have poured into Japan from specialist trading firms, and theyve increased liquidity, observed Ned Phillips, CEO of Chi-East, a joint venture between the European venue Chi-X and the Singapore Exchange (SGX) that launched a non-display liquidity venue for traders in securities listed in Australia, Hong Kong, Japan and Singapore. Even though Asian markets have different dynamics, its the same end result that people want to get a trade done efficiently, and to get it done cost-effectively, said Phillips. Nevertheless, other markets will likely take their time to lay the groundwork before opening up to non-display liquidity venues, observes Bharat Shah, Product Director, TCS BaNCS Securities Trading. Shah outlines four things that have to be in place for nondisplay liquidity to take firm hold across Asian equities markets.

LOOKING FOR LIqUIDITy IN ASIA

1 2

s markets moved away from the open outcry trading of the 20th century, the electronic trading venues at first mirrored their offline counterparts. Traders would open-

ly post bid and ask prices for a stated volume of shares in a given stock and accept others bids and asking prices. Yet as trading volumes increased, it became increasingly difficult for traders to move large blocks of 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 find counterparties to large trades without revealing their intentions to the broader market. In the U.S. and Europe, where securities regulations support the existence of dark pools, a whole host of different venues have emerged, including those operated through brokers own matching systems, through agency brokers, and even from the legacy exchanges

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From far left: 1. Ned Phillips, CEO, Chi-East;

First, there has to be a country-by-country focus on market infrastructure. Latency is going to be a key issue, as dark pools are effective only when you have millisecond-level latency, said Shah. Each country needs to look at its market infrastructure to improve latency. Paired with the need for latency is the question of co-location. Market strategies succeed or fail based on how quickly, in milliseconds, trading firms can buy and sell equities. The speed requirement makes it critically important for exchange operators to provide clear indications of the rules and practices by which trading parties can tap into exchanges networks, whether from the standpoint of network topology, power availability, or real estate. Second, alternative trading venues create functional separation between trading activities and clearing and settlement, which poses a new challenge in markets in which the exchange currently integrates both functions. You cannot expect a trading member to become a clearing member with all of the venues, says Shah. To be a trading member and a clearing member with so many venues is in itself another cost factor. Thus, market participants will need to operate through trading hubs that provide many-to-many connections between trading firms and liquidity venues. These hubs must preserve the ability of trading firms to connect to their preferred clearing and settlement providers even as they seek out best execution across multiple trading venues. Third, trading firms will need to implement technologybased solutions that optimize trading strategies across multiple trading venues. The volumes are going to increase tremendously, says Shah. For this, firms will need smart order routing, which quickly checks all of the liquidity pools and makes trading decisions in a split second. Fourth, regulators and market participants will have to figure 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 faced by anyone trying to figure out the current price of 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 if meaningful share prices can be determined, there are further questions about the mechanics of how prices are propagated to the market. Are you going to be able to take market data from aggregated market data vendors like Reuters or Bloomberg, or will you be directly taking market data from the exchanges? asks Shah. The latency will be quite different when you subscribe to an exchange market data feed compared to the market data aggregator.

2. Zennon Kapron, Kapronasia; Bharat Shah, TCS Financial Solutions; 3. Bharat Shah, TCS FS; Christian A. Edelmann, Oliver Wyman; Ned Phillips, Chi-East; Bahar Brown, Nomura; Gregory Henry, Liquidnet Asia 4. Zennon Kapron, Kapronasia

BUILDING INFRASTRUCTURE FIRST

pools to come in, says Shah. The linchpin to progress is market infrastructure, which brings local markets up to par with emerging global market practices. People normally look at trading first, says Shah. But we should consider the back office and the risk aspects as very important from the beginning. In addition, widespread dark-pool expansion in Asia along the European and American models may take a long time to materialize, and in some markets, the exchanges may even grow in influence before alternative trading venues gain a foothold. In India, institutional block trades are already handled through the exchanges themselves. Even foreign exchange instruments are being brought onto the exchange, notes Shah. More and more focus is being placed on exchange-traded instruments. Exchange-promoted dark pools may have a decided advantage in Asian markets. Because the political benefit of protecting retail investors interests outweighs the abstract market improvement that may accrue if dark pools were made more widely available, national regulators in Asia tend to favor the interests of the domestic retail investor base rather than the local subsidiaries of global institutional investors. Given these political sensitivities, and the perception that exchanges create a fairer playing field for retail investors, exchange-promoted dark pools are more likely to succeed than independent or broker promoted dark pools, suggests Shah.

temming from these challenges, Shah expects that the transition to non-display liquidity will not happen overnight. Its going to be a very slow process to allow these

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interview

A conversation with Debbie Bianucci, CEO of BAI and Manuel A. Chinea, Chief Marketing Officer and SVP, U.S. Retail Banking Operations, Banco Popular North America
Debbie Bianucci

BAI REPORT

What are your general perspectives on the state of the financial services industry?

CHINEA: To start, were looking to use technology to enhance the

customer experience. We are also employing technology to either enhance existing services in a way that creates value, or to drive potential new sources of revenue that could help us offset some of the areas curtailed by regulatory reform. On the cost efficiency side, weve been investing in ways to deliver services to customers while also reducing costs to the bank. One example is self-service, which customers perceive to be of value while also representing cost savings for us. Mobile banking and online banking is a good example of 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 costeffective way is high on our priority list for IT investment. Also, were always looking to improve our metrics and incentive plans. We plan to continue investing in enhanced metrics, aimed at better aligning our profitability measurements with incentives, and improving the systems we put in front of our employees to manage customer interactions.

CHINEA: Were nowhere near out of the woods yet in terms

of credit quality issues, but certainly we seem to have turned the corner. Up to this point, the focus has been around credit quality and capital adequacy, and most banks have dealt with those issues. There seems to be a shift back to the business and towards the future. 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 of all of the recent regulatory changes. Were all looking for sustainable, profitable growth.

How has BAI helped its membership to adjust to these regulatory changes?

BIANUCCI: In retail banking, the changing consumer is a critically

important part of the banks evolution of how they look at the future. Consumers have considerably greater knowledge about the banking industry because of what weve gone through over the past couple years, with the intense media spotlight on the financial sector. So much has been visible to consumers in ways that we hadnt really seen prior to that. Consumers are also changing their preferences and behaviors, particularly in how they use technology. For example, the use of 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 conference and through research that we conduct, we help banks to understand the changes that consumers are making in attitudes, preferences and behaviors, and to establish strategies that capitalize on knowledge of the needs and wants of various segments of the consumer market.

BIANUCCI: Three areas that are starting to pick up considerably.

First is the self-service mobile area, which as Manuel mentioned, allows customers to receive financial services in ways that are more convenient for them and create some efficiencies for their banks. The second area is in the category of business intelligence. The massive wave of regulatory changes has affected fee income and product strategies, particularly in how segment profitability is calculated. New forms of information and intelligence are essential to managing these changes. The third area is in core banking systems. With the many challenges facing banks over the past few years, many organizations 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 for how they will evolve over time. These three areas self-service, business intelligence and core banking are increasingly high priorities for the industry.

Now that banks are looking forward, what type of IT projects are retail banks pursuing now?

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Manuel A. Chinea

How did you structure the conference to address these needs?

very successful and they will be held up as case studies of how to navigate challenging conditions to build a stronger brand in the end. Think about how the Tylenol brand has been described for what it achieved in rebuilding its brand. We are going to see similar success stories in banking side. Its just a matter of time.

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 conference has changed considerably on a number of levels to reflect this. We have built an event that will look considerably different than past conferences in terms of the content, the structure, the options for 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 different approach to segmentation this year at BAI Retail Delivery. Weve created summits in Marketing, Multi-Channel Strategy, Product Management and Sales designed especially for retail financial services professionals who want to focus on these topics. Conferences use tracks all the time, but whats different about this structure is that each Summit is designed as a standalone event with moderators for each Summit who will connect the dots from one session to another. Another change is that were drawing upon the expertise of people in industries outside of financial services who have examples of successful and interesting innovation. As much as bankers want to hear from other bankers and they do theyre often more inspired by executives from companies and industries outside of financial services. Weve worked hard to bring in these perspectives that will be provocative and stimulating, yet having applications to financial services from a different perspective.

State Bank of India will be presenting at BAI Retail Delivery about its deployment of TCS BaNCS Core Banking. What lessons can bankers learn from this groundbreaking implementation?

BIANUCCI: A conference of this size and scope has a mix of

megabanks, large regionals, regionals, super-community and community banks, and we have participants from all over the world. When were talking about one of the largest core banking implementations in the world, our responsibility is to find ways to make the insights valuable to a diverse audience. What weve found with smaller financial 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 fact, we find that executives of smaller institutions are very interested in learning from trends in larger organizations, often more so than in researching banks of similar size. Theyre very smart about figuring out how to adapt these perspectives to their own environments, whether in terms of technology, marketing, sales, channel strategy or product management. With all of the talent changes that have happened in this industry, especially over the past few 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 of interest in learning whats going on in larger financial institutions around the world.

If non-bankers are speaking at a banking conference, what about the reverse? What might bankers have to say to people in other industries at this point?

BIANUCCI: Ill make a prediction. In the not-too-distant future,

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 few years by a decline in consumer trust and confidence. But based on what banks are doing today, I believe that there will be some organizations that are

CHINEA: This conference is all about thinking outside the box. Im

looking forward to the session, and am confident that there will be things we can learn that we can apply to our own services and delivery channels.

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briefing

WEALTH MANAGEMENT
Head Presales and Strategy TCS BaNCS Wealth Management, TCS Financial Solutions
How has increased interest in the sector affected pricing models?

Q&A with Vijay Ramachandran

Whats your assessment of the current market for wealth management services?

A
progressively higher levels of service, while those facing temporary setbacks are migrated seamlessly to lower-cost, automated channels. These market trends indicate the need for convergence between firms that have historically supported mass affluent customers and those that have supported HNWIs. From this convergence, we expect to see intensified rivalry in the wealth management business, with more firms chasing increasing numbers of HNWI individuals while also seeking greater market share among mass affluent customers. The strategic stakes are high, as the long-term prospects are limited for firms that are shut out of the higher end of the financial services market. For these reasons, we believe that the key to success will be the ability of financial institutions to provide a full-service menu of wealth management options across the wealth scale, spanning geographical regions, and carefully matching products and services to customer needs. Firms that have traditionally been considered asset managers, portfolio managers and financial advisors should be prepared to work with customers across the wealth spectrum, using technology to provide integration between verticals and lines of business. arms.

s greater numbers of integrated, multiline financial services providers bolster their wealth management offerings,

they will have greater flexibility on pricing vis-vis financial services firms that operate at a greater distance from their wealth management For example, some financial services firms are essentially resellers for wealth management providers, receiving commissions from the manufacturer for sales to their own customers. These institutions are relatively constrained in how they can adjust their pricing levels. Firms with stronger integration between their wealth management portals and other financial services, such as retail banking, insurance and commercial banking, can set prices based on bundles and tiers of service. This capability enables firms to provide competitive pricing in highly-contested market segments, while increasing profitability in areas with high perceived customer value. Finally, firms that have aggregated accurate information about their customer relationships can institute customized pricing based on narrow customer segments. For example, HNW individuals paying an annual fee for personalized advisory service may receive a bundle of free services for which other customers would be charged. Similarly, mass affluent clients can be offered options that include different mixes of online self-help and paid consultations with financial analysts.

lthough the levels of global wealth for high-net-worth individuals (HNWIs) rose almost 19 percent last year, those gains

have not yet erased prior-year market losses from the economic downturn. Nevertheless, the total population of HNWIs has nearly recovered to earlier levels. The recovery has been led by the Asia-Pacific region, which now has 3 million HNWIs, equivalent to the European HNWI population (Source: Capgemini/Merrill Lynch 2010 World Wealth Report). For wealth management firms, the significance of these figures is twofold. First, judging from its rapid rebound, we can expect the global HNWI population to continue expanding globally, leading to expanded revenues in the wealth management sector overall. This will generate increased interest in the wealth management sector by financial services firms of all types. Secondly, the line between mass affluent customers and HNWIs has become blurred, as fluctuating portfolio values may cause an individual to cross arbitrary distinctions from one year to the next. This creates a challenge for financial institutions to handle these transitions gracefully, such that someone with rising wealth receives

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T
revenue.

The line between mass affluent customers and HNWIs has become blurred due to fluctuating portfolio values.

How can a firm adequately serve different customer segments in wealth management?
he first step is the segmentation process itself, which captures the dynamics of the local market, the global investment

How should firms respond to increasing levels of financial sophistication among clients?

climate, and the clients own expectations. Accurate segmentation can be a strategic advantage for wealth management providers in growing Given the blurred boundaries between mass affluent and HNWIs mentioned earlier, instead of basing segmentation on a single snapshot view at the time of onboarding, wealth management firms increase their flexibility by tracking segmentation dynamically. In this area, TCS BaNCS has deployed heuristic algorithms originally developed for anti-money laundering to monitor client information and transactional trends, resulting in the ability for firms to know precisely and immediately when customers move from one wealth range to another. In todays market, dynamic customer segmentation has become an imperative. The CRM module of TCS BaNCS Wealth Management includes financial profiling capabilities that may be used to suggest the most appropriate market segment for customers based on their total financial profile. Advisors and wealth managers can capture information about clients risk appetites and build a model portfolio based on historical evaluations of performance trends by asset class, key performance indicators such
istockphoto

At the same time, theres a greater propensity for clients to disregard that advice, even when its entirely in their best interests. The best approach starts even before the individual becomes a client. During the sales process, advisors should prepare a complete plan for prospects that includes a clear explanation of the firms investment processes and controls. Customer trust has to be earned, and transparency is an essential element. Transparency runs both ways, as clients should be willing to provide the details of their total holdings in order for wealth managers to Starting with these portfolios, wealth managers can layer additional advisory and research services for 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 self-service and online tools, HNW and UHNW individuals receive higher levels of personal service. Mass affluent customers may receive advice and information almost exclusively via self-service capabilities, while HNW and UHNW are provided with dedicated support resources along with self-service options that open up a channel for personalized messages and advice. come up with an optimum investment plan. In turn, firms should be realistic about the needs of clients having multiple wealth management providers, and be well-prepared to capture the details of their held-away assets and liabilities. Clients receive numerous benefits from mutual transparency. Drawing upon a total picture of client assets, wealth managers can build structured products that cater to the specific financial planning and tax needs of an individual or family. Whether for tax planning, estate planning, trust planning or management of a family office for wealthy families, the ability to capture complex information from dispersed sources is a key criteria to improved service and a critical driver of superior returns to clients.

his is indeed a challenge. As clients get more sophisticated about their financial affairs, they require better quality advice.

as volatility, and cross-instrument correlations to ensure portfolio diversification.

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How can firm management and advisors stay on the same page regarding client status?

T
What steps can a firm take to ensure that its wealth managers and advisors are following relevant rules and regulations appropriately?
More than that, the long-term viability of a firm depends on its ability to foster an environment of trust, such that the institution is working toward its clients best interests. As a foundation, advisors must recommend products based only on suitability to the client, not based on profitability to the advising institution. These elements of the wealth management business are not only global best practices, but common sense and good governance. Increasingly, firms are responsible for ensuring consumer protection, such as in Europe with provisions of the Markets in Financial Instruments Directive (MiFID). Firms can and should go beyond the legislated requirements, providing clear disclosure of results and operating practices to give investors and regulators added confidence in firm operations. For example, wealth managers can report portfolio performance in accordance with Global Investment Performance Standards (GIPS), which use time-weighted rates of return as well as money-weighted rates of return. Although GIPS are voluntary standards, it greatly benefits both firms and the broader industry to embrace their adoption. To prevent unauthorized activities and to meet the compliance expectations of regulators across several jurisdictions, wealth management firms must be equipped to produce full audit trails, with usage logs that track every transaction made by every single user of the system. Also, firms with HNWI clients are under extraordinary pressure to maintain the highest levels of information security, with role-based privileges that ensure client privacy. At the same time, regulators expect scrupulous compliance with anti-money laundering legislation, which requires technology to monitor individual transactions, total account activity, and patterns occurring throughout an organizations global footprint. Carefully-designed business processes also ensure overall compliance. By preventing outof-sequence activities, firms can ensure that their advisors and wealth managers are acting in a way that best reflects upon the integrity of the firm and its fiduciary responsibilities to its clients. technology component, and TCS BaNCS has strong capabilities in each of these areas. All of these compliance-related steps have a

his is an issue of data quality and process control. Clearly, you dont want a wealth manager keeping one set of books for

a customer and another set of books for management. But its also harmful to the firm when management has insufficient insight into the legitimate activities of its wealth managers. Thats why TCS BaNCS Wealth Management includes

he wealth management industry is heavily regulated, and the line between advice and sales has been clearly demarcated.

extensive reporting capabilities at the management level, for advisors, and for clients, in a way that maximizes transparency, improves returns, and enables incentives to be set in a manner that best serves clients interests. Management-level reports include interactions reports, client scrip and sector exposure reports, financial planning summary reports, multi-level realized and unrealized profit and loss reports, rebalancing reports and transaction summary reports. Also, as described earlier, dynamically-generated customer segmentation analyses can ensure that customers receive the appropriate level of service to meet their current financial needs. Advisors can generate accurate summaries of clients positions, transactions and tax status details, customize those reports in carefullycontrolled ways, and supply them to customers through multiple channels. Our reporting approach depends on access to third-party data and information as needed. The TCS BaNCS Service Integrator allows for seamless integration of held-away portfolio data and other information, using technology based on Service Oriented Architecture (SOA). SOA enables integration of third-party solutions and
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promotes ease-of-use for both wealth managers and clients.

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TCS BaNCS Wealth Management ROADMAP

O
What are some other ways that SOA benefits a firm?

ur solution delivers tested and manageable processes that work across geographical regions and support multiple levels of client expectations. We aim to constantly review and incorporate the latest trends in the

wealth management sphere, and have the following elements on our roadmap: TAX PLANNING Advisors are able to provide more comprehensive advice on investment and retirement plans based on current tax law along with professional estimations of future changes. PORTFOLIO MANAGEMENT Advanced rebalancing tools and risk management tools have become increasingly critical with the recent volatility and uncertainty in the market, and we are consistently incorporating the latest practices and portfolio analytics techniques into our solution set. PORTFOLIO ATTRIBUTION In addition to looking forward to determine the best way to allocate assets for maximum return, advisors also benefit from reviewing historical performance to identify the sources of return, which contributes to more accurate reporting and better calibration of investment models. REPORTING Customer communications not only builds a better relationship between advisors and clients, but it also has the potential to serve as an additional revenue stream through fee-based reporting services. As such, we are adding capabilities to support information-driven business models for financial services firms. CLOUD/SaaS Hosted solutions are being seen as an increasingly attractive option for firms seeking to lower their capital expenditures and operating costs, and we are looking at these business models very closely. Financial services firms that rely upon TCS BaNCS Wealth Management can be

he SOA approach also supports flexibility in implementation, as firms using SOA can deploy solutions involving multiple

components from across the TCS BaNCS suite

of products. As firms rationalize their technology infrastructures, new solutions are often deployed in different areas of the front-, mid- and back-office. For example, in one recent implementation, we provided interoperable solutions across wealth management, securities trading, securities processing, insurance, and corporate actions. This was only made possible through the use of SOA across all of the TCS BaNCS solutions. SOA makes it possible to combine different components from across financial services to meet complex deal requirements. In addition, the modular deployment capability enabled by SOA allows for easy implementation of specific modules that operate across solutions, such as CRM, Financial Planning, Portfolio Management, and Distribution Management.

assured of excellence in execution and access to competitive and market practices, business strategies, and technologies.

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events

TOWERGROUp ANNUAL CONfERENCE AND ExHIBITION ApRIL 2010, BOSTON

1. The TCS Financial Solutions team at the TowerGroup Annual Conference & Exhibition in Boston. 1

SIfMA OpERATIONS CONfERENCE AND ExHIBIT, MAY 2010, pALM SpRINGS, CALIfORNIA
2. Sri Sundar in a briefing with Tom Steiner, Editor-in-Chief of Securities Industry News. 3. Manish Garg, moderator; Barry Zucker, Deutsche Bank; Rod2 3 ney Nelsestuen, TowerGroup; Sri Sundar, TCS North America, Head of Banking and Capital Markets

The New Zealand Exchange (NZX) has launched the New Zealand Clearing Corporation (NZCC) by implementing a state-of-the-art CCP-based Clearing solution based on TCS BaNCS Market Infrastructure. R. Vivekanand, Global Product Head, TCS BaNCS Market Infrastructure, TCS Fi-

NEW ZEALAND ExCHANGE (NZx) LAUNCHES NEW CLEARING CORpORATION WITH TCS BaNCS

nancial Solutions stated: We have made significant investments in the last three years to develop a multi-asset-class CCP engine, which forms the core of our next generation Clearing platform. This solution will enable NZCC to clear derivatives and new products in addition to equities, which has been implemented now. This successful transformation program highlights our dedication to develop superior innovative solutions for the global market infrastructure industry. TCS BaNCS Market Infrastructure addresses Straight-Through-Processing across the capital market infrastructure value chain, encompassing exchange trading, exchange clearing with CCP, central depository/registry services, market surveillance, and low technology penetration areas such as Registrars and Transfer Agents (RTA) services.

a
Vikrant Gaikwad, Sanjeev Khati TCS Financial Solutions. platform. tives markets.

4. The team at the SIFMA Operations Conference & Exhibit in Palm Springs, Calif. Left to right: Sanjay Prasad, Joseph Varghese, Anirudha Mazumdar, Manish Garg, Balaji Ayyangar,

ISE SELECTS TCS BaNCS MARkET INfRASTRUCTURE

The Inter-Connected Stock Exchange of India Ltd. (ISE) will revive its equities market exchange with an integrated trading, clearing, surveillance and risk management platform from TCS BaNCS Market Infrastructure will power ISEs equi-

ties exchange with high levels of performance, superior user interfaces and low latency through a single integrated Our evaluation of the TCS solution has been rigorous and detailed, encompassing technical and functional aspects of the solution, said P. J. Mathew, Managing Director, ISE. We are confident that the state-of-the-art solution and TCS expertise in this space will help us launch the exchange smoothly. Following the equities market deployment, ISE will then be in a position to extend its exchange operations into deriva-

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TCS NAMED A LEADER IN GARTNERS MAGIC QUADRANT fOR INTERNATIONAL RETAIL CORE BANkING REpORT 2010
Our customer centric approach of building solutions and

a highly mature product engineering capability continue to demonstrate success in solving pressing customer problems. We believe our placement in the report only substantiates our promise of delivering certainty to our esteemed clients.
N. Ganapathy Subramaniam, President TCS Financial Solutions
This Magic Quadrant graphic was published by Gartner, Inc. as part of a larger research note and should be evaluated in the context of the entire report. The Gartner report is available upon request from TCS Financial Solutions. The Magic Quadrant is copyrighted 2010 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartners analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the Leaders quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Gartner, Inc., Magic Quadrant for International Retail Core Banking, Don Free, September 13, 2010.

pROMONTORY
The fourth issue of Promontory, TCS Financial Solutions research journal, is now available. Contents include original research on the European payments industry, the role of remittances in U.S. wire transfers, the road ahead for STP, emerging trends in mobile and web payments, and ISO 20022 adoption by IFX Forum. Download the latest version from the Resources page at www.tcs.com/bancs.

meet the future of finance

2-3 November 2010 Zrich, Switzerland http://www.finance-forum.com Official exhibitor. TCS Financial Solutions will showcase TCS BaNCS Private Banking and TCS BaNCS Payments.
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13-15 April 2011 Cape Town, South Africa http://www.csd11.net/ Platinum sponsor of the 11th conference of the Africa & Middle East Depositories Association (AMEDA), a non-profit organization comprised of Central Securities Depositories and Clearing Houses in Africa & The Middle East.

18-19 April 2011 Bahrain http://meftec.com/ TCS Financial Solutions is a Platinum sponsor of the worlds premier financial technology event for emerging markets, with major focus on the Middle East, Africa and South Asia (MEASA) region.

Visit us at Booth 4-06.

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