Microsoft has succeeded in entrenching itself onto the desktops of Wall Street with its Internet browser, Microsoft Windows and Excel. Meanwhile, key customer relationship and database management powerhouses are left to the devices of Cisco, SunGard, SAS, IBM and others.
Now, however, Microsoft is giving Wall Street another go by providing the buy- and sell-side with the flexible resources to develop proprietary software. Plans are so ambitious it has ramped up the number of employees dedicated to financial services from a mere six in 2002 to 600 today.
While Microsoft has extended Excel's capacity to one million rows of data, PowerPivot, the newest turbo-charged version of Excel, running on the Macrosoft Azure cloud-computing services, can tackle at least 100 million rows of data simultaneously. This opens up limitless possibilities for portfolio managers, traders and product innovators, to speed up their analysis of trading algorithms. This, in turn, is expected to lead to the creation of new investment vehicles
The Big Hand-Off
The Redmond, Wash., firm is priming itself to be integral to the financial world's move toward digitized consolidated technology and business unit workflow.
John Jacobs, chief operations officer at Lime Brokerage, which caters to high-frequency-trading firms, says high-speed traders are especially apt to develop their own risk-management software, and are likely to embrace PowerPivot.
Accenture's Lloyd Altman, senior director, capital markets practice, agrees: "On every single desk, especially those with quantitative analysts doing modeling, Excel is always used."
Altman noted Excel strengths, such as its graphical front end, its built-in tools to perform regression analysis and other analytics as well as its ability to pull in and use third-party calculation tools, such as Fincad, which develops derivatives pricing models.
But at a certain point, he said, Excel is no longer enough. Those traders typically have to migrate their work to more robust platforms, especially when performing data-intensive risk analysis or in search of extreme trading speed.
"Algorithms don't want a human involved," Altman said, adding, "You might want Excel to create the algos, but you don't want to use it to deploy them, since it would just slow you down."
Starting May 12, Microsoft began offering business customers the 2010 version of Microsoft Office including Excel with PowerPivot.
As to exactly how PowerPivot could change the nature of developing trading models, experts noted that in the past, trading prioritizing speed required specially designed software and hardware to send orders to market centers at speeds in which microseconds determine whether a trade results in a profit or loss. But the analysis fueling each order adds to trade latency as well. With 100 million rows of data, Microsoft could score some big points with traders by enabling them to develop more-complex trading and risk models that tap a vast store of data-all in Excel.
"To deal with speed in high-frequency trading, you have to keep all the data in memory for you to even have a chance to do calculations fast enough," said Matt Meinel, vice president of market development at 29West, a high-speed messaging provider acquired by data-integration specialist Informatica in March.
Meinel calls the hundred million rows of data enabled by PowerPivot "key" to supporting advances in high-frequency trading, if not the actual trading itself.
Meinel said he told Microsoft executives, while serving on an industry advisory council for Microsoft Office in 2001 while in a previous role at UBS, that half the world's capital was going through the Excel calculation engine. But he asserted that the product suffered too many failures in difficult calculations.
Financial services firms still tend to rely on platforms comprising hundreds or even thousands of servers to essentially create a giant spreadsheet to aggregate very large quantities of data and analyze it.
"You do all the slicing and dicing on that platform, and then you download it to Excel to view," he said.
Meinel says most traders can write spreadsheet macros, but at a certain point must pass off the model to a programming team.
With PowerPivot, Microsoft is enabling more of that work to be done at the trader's desktop, or the desktop of any user juggling large quantities of data.
Microsoft is also enabling traders and other finance executives to host their applications, such as trading or risk-analysis models, at the software firm's data centers, to boost their capacity and automatically benefit from technology upgrades.
This is what Microsoft's Windows Azure cloud-computing platform offers, said Ben Narey, director of Microsoft's banking and capital markets groups.
New York-headquartered RiskMetrics Group, which analyzes risk for sell-side and buy-side firms, recently adopted Azure to gain database capacity, especially to support large bursts of activity in today's volatile markets.
Crunching clients' data in risk models such as Monte Carlo simulations requires huge capacity. Rather than investing in a system to handle burst volumes itself, RiskMetrics is instead devoting those resources to developing new services for customers, according to a case study by Microsoft and RiskMetrics.
Peter Redshaw, an analyst at Gartner Group who focuses on financial-institution outsourcing, says it's a misperception that Windows is typically relegated to the desktop level. He notes that financial services companies often run a variety of architectures such as Unix, Linux and Wintel-the latter combining Windows with Intel chips-in their data centers.
Redshaw says one of the biggest risk-management obstacles facing financial services firms is having the right data in the right place at the right time, especially because it comes from multiple sources, often in different formats.
A turbocharged Excel application alone doesn't address that issue. "Firms spend a fortune in time and effort trying to reconcile all this data," Redshaw says, adding, "They certainly need wider and deeper access to data, so something like PowerPivot will be a help. But it's not a silver bullet."
Vendors have reacted to the trend of financial companies relying on fewer applications by including more functions in their applications, making it harder to categorize them.
Events such as Greece's recent credit crisis and the so-called flash crash May 6 only highlight the need for trading firms to maintain complex models, yet streamline the applications that crunch that data for such functions as view risk enterprise-wide.
Microsoft's Net tools should complement that, as they let users write and manage Web applications in multiple programming languages, including SharePoint.
Microsoft's biggest challenge may well be overcoming its desktop-provider reputation. Earlier this year, Microsoft hired Matthew Bienfang to articulate to clients how the firm's more general applications can be adapted, often working with other vendors. Bienfang was a senior research director at consultancy TowerGroup and previously worked at broker/dealers as head of trading and brokerage operations.
Microsoft has worked with a number of very large financial services firms in recent years, including Raymond James, Bank of America and Credit Suisse.
Credit Suisse, for example, completed a four-year project in 2009 to streamline the technology platform and data used by its alternative investments group. The project consolidated numerous existing software programs built by the firm's IT department and trader-developed macros onto a single platform, and adopted a single workflow, rather than the many fragmented ones of the previous system.
Credit Suisse used the .Net tools and SharePoint to develop the platform, whose components now draw on a normalized pool of data.
Narey says Credit Suisse developed the platform to provide real-time computation of pre- and post-trade analytics, and to ensure the information used by its employees is accurate. The Swiss firm consolidated a hodge-podge of tools and data into a single work flow so that "corners couldn't be cut, and to provide greater transparency to management," Narey said
"The platform has really opened up new opportunities to fund managers, analysts and management to use the data in very timely and strategic ways to manage risk," he added.
Now, according to Narey, portfolio managers can see how the pre-trade analytics shaping their trading decisions are changing in real-time as their actual trades and market dynamics shape their portfolios.
But the toughest nuts to crack are likely to be the trading firms who proudly develop trading-software solutions and are highly secretive to boot.
Take the chief technology officer at a Chicago-based proprietary trading firm, which specializes in fixed-income and related futures. He agrees that Excel's data limitations have caused headaches, so PowerPivot will likely be welcomed by anyone "who has to analyze millions of rows of data."
The bigger issue, the CTO says, is Excel's "poor performance when it comes to processing real-time data."
Office 2010 has greatly improved processing power, Narey contended "A lot of this comes down to multi-thread and multi-core workloads that better achieve the low latency and high-trading volumes financial firms are seeking right now," Narey said
Microsoft noted that Excel 2010 can now process larger sets of data, enabling risk calculations that normally take hours of processing time to "be processed in the back-end quickly and then uploaded instantly to a desktop."
The CTO also said the Azure cloud-computing platform may be suitable for more commoditized applications. But his firm would feel "uncomfortable" moving the most critical processing or data to a third party.
Microsoft responded that security measures are built into the platform, which offers a "99.9% uptime service-level agreement."
Here's how Microsoft's upgrade of Office and cloud services are intended to benefit trading firms:
-Handles one million rows of data.
Handles 100 million rows of data with PowerPivot feature.
Processing speed increased.
-Results integrate with Office functions such as picture editing and Web applications such as SharePoint.
-Proprietary trading software can be hosted at an Azure data center.
-Data center automatically upgraded and maintained by Microsoft.-Combined data-center capacity handles big bursts of messages.
-Security measures are built-in-Service level agreement guarantees
99.9 percent uptime.
-24/7 service and support.