InformationWeek: The Business Value of Technology

December 18/25, 2000

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Bloomberg Aims To Simplify Straight-Through Processing

Company wants to be seen as the open platform that can process orders to all systems

By Anthony Guerra, reprinted from Wall Street And Technology

More on financial services:

Reuters: CGI Buys To Boost Financial Services Offering (12/01/00) TechWeb Finance: J.P. Morgan Beckons Millionaires To Web (11/09/00) TechWeb: New Spec Eases Data Sharing (9/25/00)

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ith the shortened settlement cycle for securities transactions known as T+1 looming, Bloomberg L.P. wants to position itself as the company that can guide its clients onto the smooth path of straight-through processing by doing nothing more than turning on a terminal that might already be on their desks.

The value proposition goes something like this: You need straight-though processing (complete electronic securities processing from order entry to settlement) to get to T+1, the one-day settlement cycle slated for 2004. The greatest cost in straight-through processing is the integration involved with communicating between different systems, such as trade-order management and portfolio accounting or portfolio modeling and compliance. Bloomberg offers a total solution, pre-integrated and pre-packaged at a reasonable cost. Choose from the straight-through processing links Bloomberg offers, and it will handle the integration.

Should you choose to integrate with a system you're already on, though, you just might get hit with a charge from your portfolio accounting system, for example. (Bloomberg won't charge you for standard integration, but the other guy might, and why even pay that?) Go with the turnkey solution we've put together, Bloomberg says, and trade off into the sunset.

For Bloomberg, whose core product is market data and news and analysis, making the concept of a total solution realistic entails signing some deals to fill in the straight-through processing links it doesn't offer, then doing some integration work to fit them together. Those specific deals are with vendors who will provide portfolio accounting, which follows execution; client-relationship management, which is used to identify the customers most likely to invest in a particular security offering; an attribution program used to study the correlation between the returns on an investment portfolio and its investment manager's decisions; an external trade allocation system; and a custom-integration partner to handle unique jobs.

Those are five links in a complex straight-through processing chain that also includes pieces for market data, analytics, risk management, compliance, trade-order management, trade allocation, and links to settlement institutions (see chart, p. 116). Such are the pieces that Bloomberg already offers on its platform, and, make no mistake, Bloomberg wants to be the platform for all your trading needs, regardless of where you choose to route your business.

Lou Eccleston, director of global transaction and data services with Bloomberg, says the key is for Bloomberg to be seen as the one open platform that can get orders to any execution venue. He refutes claims that Bloomberg is a closed system, citing the example that equity orders placed in its trade order-management system can be routed anywhere, to any electronic communications network, not just to Bloomberg's electronic communications network, Tradebook.

Eccleston says the deals with the vendors will most likely be co-branding arrangements so those vendors can be involved if any serious problems arise with their systems. "When we get these things signed and integrated, you put a Bloomberg [ter-minal] on the desk and people have a total solution," he says. Eccleston adds that concerns about upgrading, maintaining, and monitoring software in the disparate systems become Bloomberg's headache, not yours.

Larry Tabb, group director and analyst with the Tower Group, says there's certainly a market for an off-the-shelf answer to the straight-through processing dilemma. Companies, he says, "are all getting kind of stressed out on straight-through processing technology implementations, so even from some of the larger players you're going to see an interest for a fully contained straight-through-processing solution." Bloomberg, Tabb adds, is in a unique position to capture that market, in part because of its prevalence on desktops and the components of straight-through processing it already provides.

Blair Kanter, principal consultant with the investment management and capital markets consulting group at PricewaterhouseCoopers, agrees. The number of Bloomberg terminals in the market (Eccleston places the figure at 148,000 systems installed, with 192,500 logons worldwide) on both the buy and sell sides affords Bloomberg a great head start in the race to capture the straight-through processing marketplace. Kanter does have some concerns about the company's successfully engaging in full-scale integration efforts. "They have always had a proprietary philosophy, and to successfully have your systems or products be integrated with everything else, they have to be open. I think that's part of their challenge," Kanter says.

Tom Secunda, Bloomberg's co-founder and head of technologies and systems development, says that such a description may have been apt in the past, but it certainly doesn't fit the Bloomberg of today.

It has been his mission during the last few years to change the company's technology from one that addressed proprietary concerns such as control of information to one of open application program interfaces, Secunda says, where Bloomberg customers can freely import, export, and manipulate data.

Secunda says that as part of Bloomberg's commitment to work with any system a customer has in mind, Bloomberg will soon have published APIs so customers can connect to and from Bloomberg with any outside link in the straight-through processing chain they might prefer.

He stresses that although the company is going to offer a turnkey system in which components of the straight-through processing chain are pre-integrated, the goal is never to limit a customer's options. "In no way is there an 'either-or,'" he says. "We want to interface with every reputable system, we want to work with everybody, and we want to be the provider to our customers where we make sense."

One thing that made sense to Doug Trevallion II, investment director of fixed-income trading with David L. Babson & Co. in Cambridge, Mass., was gaining more control over the display of Bloomberg information. He agrees that Bloomberg has been changing from a closed to an open system by providing technology such as an ActiveX control, which allows customers to customize what they see on their screens.

Trevallion explains how an ActiveX control might work: "If you wanted to put together some tables or some graphs across some historic information and you needed three or four different chunks of Bloomberg data or screens, you can basically customize those, and that's something that they are beginning to roll out to their clients."

Susan DeSanto, VP and manager of portfolio administration at Van Kampen Funds Inc., a mutual fund and investment advisory firm in Chicago and a subsidiary of Morgan Stanley Dean Witter, also says Bloomberg has undergone major changes in the past few years, opening its systems and the use of its data. That kind of news is music to Secunda's ears. "Clearly, if people say Bloomberg has undergone a major revolution--or evolution, I would rather use--from what we were four years ago to what we are today, that's absolutely true," Secunda says.

Van Kampen uses Bloomberg for its market information and trading needs, DeSanto says. The company also uses Charles River Associates Inc. for compliance (making sure a portfolio's holdings are in line with its mandate), internal systems for portfolio accounting, and State Street Corp. as its custodian and fund accountant. The turnkey system that's being constructed by Bloomberg, she says, is something that Van Kampen will examine closely. "We are always looking for ways to make things easier and automated," she says. "We've gone back and forth over the years of using external sources or internal sources, so it would certainly be something we would look at."

Matt Carney, an equity trader with Trusco Capital Management in Atlanta, says his company uses Bloomberg for trading and finds it especially functional in allocating portions of large stock purchases to multiple accounts. Right now, however, he says a real-time direct link between Bloomberg's trading system and the Portia accounting system from Thomson Financial Software Solutions, which Trusco uses, doesn't exist. Though there's no rekeying, a file has to be manually exported from Bloomberg and dropped into the accounting system. That's one area in which Carney finds room for improvement--and something Bloomberg's proposed pre-integration with an accounting partner should resolve.

At the end of the day, though, it's about business, and for Bloomberg, business is about adding functionality and signing more customers. By adding links in the straight-through processing chain, Bloomberg is increasing its number of potential customers to include back-office operatives who had no full-time need for Bloomberg functionality, or, at the very least, could get through the day by using their neighbors' terminals while that person was at lunch.

Now, however, they will have a real place in the Bloomberg loop. Eccleston envisions a world where all the people involved in the straight-through processing chain (operations staffers, administrative managers, portfolio managers, and analysts) need a Bloomberg terminal on their desks. "In the United States, you have an installed base of roughly 60,000," he says. "The potential market in the U.S. alone for seats [terminals] is between 200,000 and 250,000, and this is the kind of thing that will get us there."

The Tower Group's Tabb agrees that the strategy to increase sales makes sense. "If you use Bloomberg as a processing system, then your operational people need access to that system," he says. "They aren't going to go share Bloombergs or go up to the trading desk to enter transactions, monitor positions, or to do operational processes, so this enables Bloomberg to be able to sell more boxes."

Eccleston has three letters of intent signed with vendors to achieve a straight-through-processing chain on the Bloomberg system. Eagle Investment Systems will provide accounting and attribution; TradingLinx will cover trade allocations; and Inforalgo Information Technology Ltd. will perform custom integration work. A customer-relationship-management vendor has yet to be signed.

Eccleston says Bloomberg managers embraced the new vision on Dec. 4, when the company held its global managers meeting to introduce current projects and company goals for 2001. Although Kanter says that full integration of such complex systems will most likely take at least a year, Eccleston insists that by the second quarter of next year, integration will be complete and everything ready to go.

Using the new integrated services will bring additional charges, but those charges should be thought of in light of what the customer is getting.

Says Eccleston, "We want to be seen as the value provider or the low-cost provider for the high-end market."

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