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Where IT, Continuity & Security are Headed in ‘06

Where IT, Continuity & Security are Headed in ‘06. Presented by Larry Tabb Alex Tabb. Agenda. The Industry Outlook & Continuity The Business Challenges A Case Study on Avian Flu The Conclusion. HSBC. $8.0. 5%. Citigroup. $7.1. 35%. Bank of America. $4.1. 10%. 14%. RB of Scotland.

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Where IT, Continuity & Security are Headed in ‘06

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  1. Where IT, Continuity & Security are Headed in ‘06 Presented by Larry Tabb Alex Tabb

  2. Agenda • The Industry Outlook & Continuity • The Business Challenges • A Case Study on Avian Flu • The Conclusion

  3. HSBC $8.0 5% Citigroup $7.1 35% Bank of America $4.1 10% 14% RB of Scotland $3.8 Barclays Bank $3.5 9% Mizuho Financial $2.8 45% JPMorgan Chase $2.5 78% 75% Mitsubishi UFJ $2.5 18% ING Group $2.3 71% UBS $2.1 49% Morgan Stanley $1.8 37% Goldman Sachs $1.6 BNP Paribas 22% $1.6 42% Credit Suisse $1.5 35% ABN Amro $1.4 49% Merrill Lynch $1.4 40% Societe Generale $1.4 59% Credit Agricole $1.2 46% Deutsche Bank $1.2 70% Allianz Group $1.0 Lehman Brothers 41% $0.8 57% Nomura $0.6 15% Bear Stearns $0.4 -13% Putnam $0.4 -19% State Street $0.1 Industry performance has been strong and getting stronger Recent Earnings Earnings Net Income Growth YoY Earnings Release Dates Q4 ‘05 Q3 ‘05 H1 ‘05

  4. Indian, Korean, & Japanese markets had the greatest yearly performance India Asia Korea Japan DAX CAC Europe FTSE HK Hong Kong S&P 500 US China China

  5. Derivatives business are all at record levels

  6. Metals, Commodities, & Energy have also preformed well in ‘05 Gas Oil Gold & Sliver Commodities S&P 500

  7. Hedge fund performance improves over ’04 as emerging markets lead performance Hedge Fund Performance By Strategy YE 2005 Emerging Markets 17.4% Dedicated Short Bias 17.0% Distressed 11.7% Long/Short Equity 9.7% Global Macro 9.3% Event Driven 9.0% Credit Suisse/Tremont Hedge Fund Index 7.6% Multi-Strategy 7.5% Event Driven Multi-Strategy 7.2% Equity Market Neutral 6.1% Risk Arbitrage 3.1% Fixed Income Arbitrage 0.6% Managed Futures -0.1% Convertible Arbitrage -2.6% Source: CS Tremont

  8. Prime brokerage earnings can reach almost 30% of firm earnings Prime Broker Earnings vs. Total Firm Earnings 2004 (in US$ billions) 29% 20% 21% Source: TABB Group’s “Hedge Funds 2005: An Inside Look at Funding, Servicing, Trading & Technology “

  9. Regulation has and will have tremendous impact on markets • Past Regulation • Order Handling rules • Created ECN Infrastructure • Legislated fragmentation • Will fragment NYSE within 5 years • Decimalization • Reduced spreads • Market making => Agency • Terrorism • Patriot Act / AML • Future and current • Basle II • Reg. NMS • Trade-through • Access rule • Sub-pennies • Market data • MiFID • PS05/9 (research unbundling) • Market Oversight • Research settlement • Sarbanes Oxley • Mutual fund • Break points • Late trading • Hedge Fund Investigations

  10. Regulatory scrutiny is increasing dramatically Average Number of Investigations by Firm Size Average Number of Investigations by Agency 2005 Source: SIA

  11. CAGR (’04 – ’07) US Equities market is moving very quickly to a low-touch model Order Flow Allocation ’04 – ’07(projected) Source: TABB Group Institutional Equity Trading 2005

  12. Data volumes are going through the roof and milliseconds matter 2005 Aggregated One Minute Peak MPS Rates CTS, CQS, OPRA, NQDS Source: SIAC, OPRA, and NASDAQ

  13. While the industry is strong, global threats are also at record highs

  14. The threat of Avian Flu has firms extremely concerned as 173 persons have been stricken Epicenter

  15. Natural disasters have become increasingly common

  16. Afghanistan France Iran India / Pakistan NYC / RCN Convention Israel/Palestine Iraq North Korea Political instability is spreading globally and could impact international operations

  17. Data security hitting much closer to home • CitiGroup blocked UK, Russia & Canadian PIN-based transactions of Citi-branded MasterCards – March – 06 • A single individual compromised 40m MasterCard accounts – June 05 • Gartner estimates that phising in the USA alone, amounted to 2.75 billion dollars in 2005 • Malicious code threats that could reveal confidential information rose from 74% of the top 50 malicious code samples to 80% during 2h 05 (Symantec) • BoA, E*Trade, MorganStanley & Schwab launch new higher security accounts and guarantees

  18. IT, Continuity & SecurityMaximizing your InvestmentCase StudyAvian Flu

  19. Avian Flu - What will be the impact? • What is it? • Where is it now? • When is it coming? • What will be the impact? • What can we do to mitigate the risks?

  20. Pandemic – What is it?(or more importantly What isn’t it?) • WHO Global Pandemic Preparedness Plan* • 6 Phased Approach • Phase 1: No new viruses detected • Phase 2: New virus detected; limited to animals only • Phase 3: Animal to animal spread; w/limited animal to human spread • Phase 4: Small clusters of human to human spread • Phase 5: Large clusters of human to human spread • Phase 6: Pandemic • Currently status of the disease • Initially uncovered in 1996 when a highly pathogenic strain was isolated in Guangdon Province, China (H5N1) • Over last few years, spreading slowly • Since Mid 03; spread of disease has increased markedly *http://www.who.int/csr/resources/publications/influenza/WHO_CDS_CSR_GIP_2005_5/en/

  21. Pandemic Flu – When is it coming? 2004 2005 2006 2003

  22. Pandemic – What will be the impact? • Societal Impact • Globally – devastate developing nations • Significant disruptions • Civil society will remain functional; though stressed (1918 Spanish Flu) • Operational infrastructure • Reduced workforce • Degraded supply chains • Social distancing • Best case - telecommute • Worst case – dislocation

  23. Pandemic – What will be the impact? • Economic Impact • Impact proportional to severity • FSI’s in more modern economies more sensitive to disruptions (but better prepared) • FSI’s in lesser developed economies face significant operational risks (limited enabling technology) • FSI’s that have experienced SAR’s should build on ‘lessons learned’

  24. Pandemic – What will be the impact? • Technological Impact • Social distancing creates increased demand for enabling technology • Voice/data networks will respond differently • Increased demand for bandwidth will strain capabilities • Increased demand for traditional phone services • Greater reliance on VPN’s & Citrix solutions • Strained technology provisioning (logistics)

  25. Pandemic – What will be the impact? • FSI Impact • Vulnerable to Avian Flu • Challenges: • Social distancing • Maintaining complex methodologies • Sustaining time sensitive processes (20 – 40% absentee rates) • Smaller institutions are more vulnerable • International institutions are more vulnerable • Payments system breakdown cold devastate developing markets

  26. Pandemic –Mitigating the risks. . . • Managed Transition • FSI’s need to use the unique nature of a pandemic to key their responses • Utilize the WHO Avian Flu Plan as a trigger to initiate action • Phase 3: Collect data & create plans; • Phase 4: Increase technology provisioning, test assumptions and rework your plans; • Phase 5: Begin transition from a normal work environment to a ‘socially distanced’ work environment; • Phase 6: Complete transition to a ‘socially distanced’ work environment • Leverage existing technology to create new methods for managing work flow • Don’t be afraid to rely upon proven ‘old world’ solutions for ‘new world’ issues

  27. ‘Managed Transition’ Challenges • Update your assumptions • Pandemic flu planning is unique • A ‘steady state’ model • Communicating in a decentralized environment • Leverage technology • Utilize redundant capabilities • Alternative solutions sets • Managing a distributed workforce in a distributed model • Ensure organizational control • Resilient command & control model • Operational Authorizations • Logistics • Mail, procurement, HR, IT support, etc.

  28. Conclusions • The industry is getting more complex; BC must keep up. • The pace of crisis appears to be increasing with the delta between normal and crisis operations becoming more ‘steep’. • If the sector is to keep up; continuity must be built into the normal business planning cycle. • Remember - Continuity can not drive technology . . . Harness technology change to enhance continuity and security. • Back to basics – Strong foundation based on solid pragmatic planning will go a long way to ensure continuity. • Flexibility – there are no set answers. Only diminishing budgets. We must be prepared to do more with less.

  29. Where IT, Continuity & Security are Headed in ‘06 Alexander Tabb Partner T:  646 747-3204 M: 646 338-5357  atabb@tabbgroup.com Larry Tabb Founder & CEO T:  646 747-3210 M: 508 579-8551  F:  508 519-0519 UK: +44 (0) 207 870 5319 ltabb@tabbgroup.com

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