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IT in Finance

With a few caveats, IT is a core component of the infrastructure at any brokerage or asset management company. By Neeraj Gandhi

The Indian economy is riding on a high growth trajectory. It’s expected to grow at a slightly lower rate of nine percent during the next fiscal. Other economic indicators such as inflation, GDP, and the index of industrial production also point to the economy doing well. In the midst of all this, the Sensex, which is the sensitive index of the Bombay Stock Exchange, is leading from the front. It recently scaled the 19,000 mark, and is all set to go past the 20,000 mark.

At the backend, brokerage houses are making hay while the sun shines. After all, it is through them that a large chunk of investments is being routed. Everyday from 9:55 am to 3:30 pm, the time period during which trading is done, they are flooded with buy and sell requests, huge investor traffic and they have to handle sensitive information.

Asset management companies are no different. Although they do not have to deal directly with the stock exchanges, the amount of information and investor traffic that they have to address is in no way less than that managed by a brokerage house.

In effect, it can be said that making investment decisions (in equities or in mutual funds) is the toughest task, not only for investors, but also for a CIO and his team. After all it is the IT team, which is responsible for managing IT infrastructure and making it capable of handling these huge volumes of investor data. Even a minor slip can spell disaster for the investor and lead to huge financial losses. Throughout the day, the CIO of a finance company has to keep his eye on the IT infrastructure unwaveringly.

IT challenges at financial companies

The IT challenges in a financial organization are numerous varying from the protection of sensitive information, to securing the network, maintaining uptime and managing databases and scalability.

“The IT challenges in brokerages are varied. They depend a lot on the phase through which a particular firm is passing. This essentially means that the challenges for a brokerage, which has just started operations, will be completely different from those faced by a brokerage that is well established. While the former will concentrate more on uptime, architecture design, and creating ample redundancy, the latter will look at scalability, and deploying applications that can manage huge databases etc.,” said Ketan Parekh, CTO, Sharekhan.

Since the investor data maintained in these organizations is huge, the backup and restore facility also becomes important. In addition, network connectivity has to be monitored on a regular basis since transactions are conducted online. “Trading systems have higher uptime and performance requirements as compared to traditional IT systems,” added Tejinderpal Singh Miglani, CTO, Indiabulls Financial Services Ltd.

Additionally there are certain transactions that take place on servers that are directly connected to RBI’s servers. In such cases, special care has to be taken to ensure that these servers do not go down, and are available throughout. Other challenges include the inability of handling a horde of simultaneous users because the servers max out, managing the content of Web sites, and failures or delays in processing clients’ orders online.

IT puzzle

While the list of IT issues in brokerages and asset management companies is long, there are certain problems that are specific to brokerages and asset management companies. Hacking is one such problem, especially internal hacking.

It is important here to note that hacking in these firms, especially in brokerages, is quite different from what ensues in the case of a bank. In a bank, the hacker stands to gain not only financially, but a hacking incident hurts the reputation of the bank in a big way. In the case of a brokerage, while a hacking incident makes a big dent in the reputation and image of the firm, the hacker stands to gain nothing or little in financial terms.

That said, hacking still is a Herculean problem to be tackled in a brokerage, especially internal hacking. “Securing information is a big challenge for most firms. Based on some security reports that I came across, internal hacking can be as high as 90%, whereas external hacking amounts to only 10%,” added Parekh.

Another problem is the availability of software applications or lack thereof. “Brokerage-specific software products are not available off the shelf and there are not many quality vendors catering to this industry. This requires us to do a lot of software development activity in-house,” said Miglani.

That said, regulatory compliance is an important area for these companies. As they work in a highly regulated environment, all systems have to be set up with compliance in mind. Another concern is the adoption of new applications as directed by SEBI and RBI. The challenge here is to learn and adapt according to the new application. “As the RBI and SEBI rules keep on changing, our application processes have to be updated accordingly,” said Shivaramakrishnan, Deputy Manager, IT, DBS Cholamandalam.

Talking about the level of IT usage by these companies, Kumar Karpe, Country Manager, Financial Services Sector, IBM India South Asia said, “Barring a few trading companies, most brokers and asset management companies have archaic solutions in India. While they do try to provide secure solutions, some of them rely on prayers that their solutions are not invaded by others. Large brokerages have put in some basic security checks to prevent obvious threats. They must deploy VPN and two factor authentication system at the least to improve the security of their setups.

“Regarding their data centers, firewalls and virtual IP would be necessary. Implementation of infrastructure monitoring systems would also be needed to minimize external security threats and reduce down-time.”

There are certain issues that do fall under the domain of IT challenges, but are of a different nature. These are essential when the organization views IT infrastructure holistically. “The major macro-level challenges include, how to ‘future-proof’ major IT investments, how to integrate technology and operations, to find and partner with the right IT vendors and solution providers, and manage IT resources, motivate and retain skilled staff and handle high levels of attrition,” said Subhojit Roy, Head - Information Technology, SBI Funds Management Pvt. Ltd.

Monitoring IT infrastructure

The fact that IT infrastructure forms the base of business operations in these organizations; it becomes imperative to monitor it closely. It is important to nurture the IT infrastructure because both performance and TCO depend upon it. The situation is similar in brokerages and asset management companies, the only difference being that priorities in IT infrastructure management are largely dictated by the kind of operations, applications and investor data. Security of information however features as the top priority.

“As we are dealing with an investor’s money and crucial information related to the finance industry, security is of the utmost importance. Additionally we also look at data backup on a weekly basis and network availability to support increasing business and ensure a constant link between our different branches,” said Shivaramakrishnan.

At SBI Mutual Funds, application and data availability to all IT users, scalability, manageability and performance of the current systems, uptime and keeping IT costs under control are being closely monitored. The company has also enabled data encryption to secure sensitive information.

Additionally, other important areas to be looked at closely include, monitoring system performance, ensuring successful backup procedures and developing or implementing disaster recovery plans, managing data to give users the ability to relate to information, providing rapid and easy access to information and ensuring the accuracy and reliability of information while providing security to protect data from damage and unauthorized access.

It is important to note here that although monitoring individual aspects of IT infrastructure does help, looking purely at silos does not serve the purpose. The need is to look at IT infrastructure holistically. What is needed is a business process at the right place which helps products and applications interact with each other.

“When an organization is growing and expanding its product portfolio, it cannot afford to look at things in silos. Hence it looks like business intelligence and data warehousing is going to be the next big thing for brokerage houses. Considering the growing customer base, various BI or data warehousing applications will become the lodestone for firms like us,” said Parekh.

If such is the case, then IT, rather complex IT, will be placed at the center of business at these institutions. This, in turn, will bring a fresh set challenges to be tackled to the fore.

neeraj.gandhi@expressindia.com