Systems Integration, SunGard-Style
Okay, class, what's the major stumbling block to integrated risk management at all, and I mean all major financial institutions? The easy answer: the
inability to integrate trades from disparate systems and sources.
Last month, SunGard Capital Markets signed an agreement with New Era
of Networks Inc. (NEON) that could represent a significant step toward integrating
data on SunGard systems and elsewhere.
NEON claims to be the leader in network-based "transactional publish and subscribe" enterprise software, which works across disparate applications,
platforms and networks, the Internet included. (See www.neonsoft.com.) NEONNet
is a piece of middleware, a messaging and queuing system with a data transformer
and formatter, plus an engine for content-based data routing. The product
reportedly "guarantees" once-only transaction delivery, and the
manufacturer claims that the integration achieved has no limits as to scalability
and no degradation of performance. According to Cristobal Conde, CEO of
SunGard Trading Systems Group, NEONNet provides a "solution that has
never previously been offered to the financial industry." If it delivers
what it promises, it could replace the millions banks currently spend developing
and maintaining their own proprietary integration software.
The product will be built into Sungard's Panorama and Octagon systems.
In Octagon, which handles options and futures, NEONet will replace "a
now cumbersome and error-prone manual trade registration function,"
said the release.
It will, alongside NEONWeb, be used for Internet-based order routing
and the transmission of customer trades, positions and margins.
There is a certain irony in the Panorama/NEON linkage, since one of Panorama's preeminent features is the ability to capture transaction data from legacy
systems. (See Derivatives Strategy, December/January 1997.) To some industry
consultants, SunGard's move suggests 1) that its legacy imports are not
all they could be, or 2) that SunGard is bent on seizing leadership of the
Founded in 1993, the Englewood, Colo.-based NEON boasts venture backers
and partnerships with Sun, EDS, HP, Oracle, Sybase, KPMG, Ernst & Young,
Andersen Consulting and, preeminently, the Society of Worldwide Interbank
Financial Communications, of which 5,400 institutions are members.
Four months ago, NEON and SunGard unveiled a partnership in which NEON
was to be used with SunGard Global Securities Manager (GSM), a multi-currency
portfolio accounting system that "faces system integration challenges."
Strangely, the newer partnership announcement failed to mention the earlier
deal. Nor did SunGard executives take this occasion to affirm how well NEON
had interacted with GSM.
While it may be no magic bullet, NEONNet's intelligent message-oriented
middleware could clearly be a strong start down the road toward seamless
Orange County Goes Interactive!
"Interactive" is one of the most overused and abused words
in the English language, particularly on the Internet, where most sites
are about as "interactive" as a plate of cold oatmeal. The same
might be said of the word "educational" on the Net. Most sites
maintained by professors, for example, including derivatives professors,
are cloudy mountains of text-often chapters of books in progress.
Philippe Jorion is a horse of a different color. At www.gsm.uci.edu./~jorion/
oc/case.asp, Jorion has created a fascinating case study of the Orange
County derivatives fiasco, which includes hypertext links to a vast range
of other sites. "It is an interesting way to teach because it is interactive,"
says Jorion, a professor of finance at the University of California at Irvine.
This case study, with layers of data, definition of terminology and illustrated
charts just a click away from the surface narrative, is probably one of
the most effective instructional packages on the subject of derivatives.
The Orange County story runs from an introduction and scene setting to
a portfolio description, a preamble on VAR and then a VAR analysis of the
Orange County holdings. Jorion has used the same deep case study approaches
on two other topics-the Mexican devaluation and a case of a corporation
hedging its Deutsche mark receivables. (For access to these, make a request
by e-mail at Jorion's home page.)