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IBM Financial Services Sector Financial Services

The 2010 SIFMA-IBMTechnology Survey

Brighter outlook, tighter reins

In the 00 SIFMA-IBM Technology survey, almost 50 Wall Street

proessionals gave their opinions on the business and IT challenges

acing their organizations. Reasons to be cheerul: the results suggestthat the industry eels the worst o the nancial crisis has passed, and

that more budget will be available or transormational projects in

ITa sure indicator o participants coming out o their crisis-enorced

shells. Almost hal o participants (5 percent) are reporting increased

budgets in 00, versus just percent in 00. Expectations or

increased 0 budgets are even more prevalent (5 percent o

respondents). It seems that the industry has turned a corner, as these

gures are essentially the mirror image o those seen in 00, where 6

percent o participants were reporting lower budgets and only 0

percent were seeing increased money or IT investment. Looking to

the year ahead, the outlook remains positive, with percent o

participants orecasting increased IT budgets or 0.

Transormational spend remains an important actor, with 6 percent o

respondents classing more than 30 percent o their total IT spend as

transormational or both 00 and 0. For 7 percent o

respondents, this area will account or more than 0 percent o the total

in 00. This may refect not only a net increase in transormational

spend but also a net decrease in non-transormational spend, as banks

continue to trim business-as-usual costs through IT outsourcing. It is

interesting to note that in 00 more than hal o survey respondents

said their companies were spending upwards o 0 percent o their

already-reduced IT budgets on operations, leaving precious little or

transormational spend. This ten-point increase suggests that the worst

o the crisis is behind us. However, companies that were orced to shed

IT sta during 00 may now be struggling to manage workload: some

76 percent o respondents cited lack o IT sta as an obstacle to project

implementation, making it the number one internal challenge.

Executive summary

The technology outlook in the nancialservices industry continues to improve,

according to the 2010 Securities Industry

and Financial Markets Association

(SIFMA)-IBM Technology survey.

The surveyin its third consecutive

yearsuggested that IT budgets are up in

2010, and that rms see brighter future

prospects for IT than they did in 2009. IT

spending on transformational projects

appears set to continue to grow, although

economic uncertainty is still seen as the

primary external challenge to IT strategy

implementation.

A signicantly lower proportion of rms cited

economic uncertainty as a concern than in

2009. Notably, potential regulatory reform

has jumped up the list of external challenges,

with systemic risk regulation seen as the

most likely area to inuence IT investments.

Lack of staff is now seen as the number one

internal challenge to IT strategy, signicantly

up from 2009. Interest in outsourcing is high,

and cloud continues to be the emerging

technology that is expected to have the

greatest impact on the business models of

nancial markets rms.

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While its true that economic uncertainty remains the top

external actor likely to impede the implementation o IT

strategy, this was cited by only 7 percent o the Wall Street

proessionals surveyed, down rom a high o percent in

00. As in both 00 and 00, second place was taken by

short-term earnings pressures, cited by 53 percent o the

respondents.

Where 00 saw a major shit, it was in the perceived impact o

regulatory reorm, with 5 percent o Universal Banks and

Broker/Dealers fagging regulatory changes as an external

challenge (up rom percent in 00 and 30 percent in 00).

Drilling deeper into this regulatory issue and taking into

account all respondents, the survey ound that regulatory

actions related to systemic risk were expected to impact IT

investments most (cited by 6 percent), ollowed by risk

transparency (6 percent). As might be expected, concerns on

the potential impact o regulation in both these areas are

higher or larger rms, who may both be in line or morestringent regulations and have greater diculty in adapting

their systems to meet them.

Areas for IT investment

Unsurprisingly, active areas or IT investment tend to be

related to the industrys core businesses, with the top three

spots taken by trading, portolio management and enterprise

risk management (each cited by 5 percent o respondents), the

latter refecting the survey respondents expectation o more

stringent regulatory requirements.

In spite o the ongoing buzz about becoming moreclient-centric, CRM takes last place in terms o active projects

or 00. This may suggest that rms are merely talking about

becoming more client-centric, but it may also imply that they

are nding other client-related activities more lucrative than

those the respondents would typically categorize as CRM.

For example, client-related topics eature three times in the

top-ten list o areas or investment in analytics (client - advice,

cited by percent o respondents; client - segmentation/

behavior, percent; client - protability, 0 percent).

Staying on the subject o analytics, rst place goes to

Compliance (37 percent) again refecting the growing pressureon the industry rom regulatory bodies. The next two areas or

analytics-related investments are Market Risk (3 percent) and

Operational Risk (3 percent), refecting the ocus on risk

management. Interestingly, compliance reporting is seen as a

non-core activity by some respondents, being the number one

choice ( percent) in a list o processes likely to be outsourced

or managed through an extended shared service. Rather than

suggesting that compliance reporting is unimportant, this more

likely shows that respondents eel it may be better (and more

cost-eectively) handled by a third-party specialist.

Outsourcing can reduce operational IT expenditure and ree

up budget or transormational spending, and may be an

increasing necessity or companies that shed IT sta during

00. The survey suggests continued interest in the

outsourcing o business processes, with 0 percent o

respondents saying that they will have at least one process

outsourced or handled via a shared service in 00. Atercompliance reporting, the top areas or outsourcing are risk

analytics (5 percent) and raud detection ( percent).

Firms continue to rene the mix between in-house and

external sotware: percent o respondents show a preerence

or choosing custom-developed applications rather than

packaged sotware. The potential competitive advantage o

developing proprietary sotware is cited by 37 percent o

respondentsthough cost is ar and away the most important

consideration in build-versus-buy decisions, cited by 7

percent o respondents.

As in 00, respondents chose cloud computing (6 percent, 0

percentage points up rom 00) and mobile technologies (7

percent) as those most likely to bring signicant change in the

industry.

Summary of ndings

The industry sees a brighter horizon or IT in 00 than it did

in 00: more rms are growing their budgets and increasing

the proportion spent on transormational projects. Economic

doubts remain, but ewer respondents see them as an obstacle

to IT, with regulations an increasingly infuential area.

Financial services rms continue to turn to outsourcing -perhaps not least because o a lack o IT staand interest in

both cloud computing and mobile technologies continues to

grow.

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Which three o the ollowing internal challenges are most likely to

impede your frms ability to implement its IT strategy?

(n = 241)

Lack o IT sta/human capital 76%

High implementation costs 63%

Business/IT disconnect 5%Governance/senior management %

Inadequate in-house technology 37%

Policy changes %

Which three o the ollowing external challenges are most likely to

impede your frms ability to implement its Inormation Technology

strategy? (n = 89; Universal Banks, Broker/Dealers)

Economic uncertainty 76%

Short-term earnings pressures 55%Regulatory changes 5%

Changing client demands 3%

Lack o suitable partnerships/vendors %

Immature technology %

Increased competition 5%

Limited growth opportunity 3%

Which o the ollowing uture regulatory actions are likely to have

the most proound eect on IT investments? (n = 241)

Systemic risk regulation 55%

Risk transparency 6%

Global regulatory harmonization 33%

Security 30%

Pricing transparency 6%

Short sale price test rule %

Cost basis reporting %

Conficts o interest %

Capital and solvency %

Derivatives trading & clearing %Sustainability %

Appendix: Survey Responses 2010

Compared to 2009 has your 2010 IT budget...? (n = 241)

Increased 5%

Remained the same %

Decreased 0%Unsure %

Compared to 2010 do you believe your IT budget will increase or

decrease or remain the same or 2011? (n = 241)

Increase 5%

Remain the same 3%

Decrease 5%

Unsure 3%

What percentage o your 2010 IT budget is allocated or

transormational initiatives vs. on-going operations? (n=180)

50 percent or more o budget %

0 percent o budget %




None 6%

What percentage o your 2011 IT budget is allocated or

transormational initiatives vs. on-going operations? (n=167)

50 percent or more o budget 3%

0 percent o budget 0%




None 5%

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In which business areas does your company have signifcant active

development, new implementation, or other improvement projects?

(n = 241)

Trading 5%

Portolio management 5%

Enterprise risk management 5%

Order management 3%

Trade reporting 35%

Trade execution 35%

Inormation security 3%

Decision support %

OTC derivatives 7%

Portolio accounting 5%

Settlement %

Clearing %

Allocations %Internal cross 5%

Arm/Conrm %

Custody 3%

CRM %

Which o the ollowing analytics, i any, do you expect your frm to

increase investment in over the next year? (n=241)

Compliance 37%

Market risk 3%Product development 3%

Operational risk 3%

Trading - equities %

Trading - xed income 7%

Credit risk 7%

Client - advice %

Client - segmentation/behavior %

Client - protability 0%

Internal raud and surveillance 5%

External raud and other crimes 3%

No increase %

Which processes are your frm likely to outsource or utilize an

external shared service or in 2010? (n=241)

Compliance reporting %

Analytics or risk 5%

Fraud detection %

Order management %

Allocations %

Trade reporting 7%

Portolio accounting 6%

Arm/Conrm 3%

Portolio management 3%

Decision support %

Other 7%

Dont know/reused 3%

None 0%

On a scale o 1 to 5, where 1 represents externally packaged solutions

with no custom internal development, and where 5 represents

completely custom internal development with no externally packaged

solutions, which does you frm most preer when implementing IT

solutions? (n=227)

packaged solutions with no custom development 7%

leaning towards packaged solutions %

3balance between packaged and custom solutions 6%

leaning towards custom development 3%5completely custom internal development 3%

What are your top-three criteria when deciding between build and

buy IT solutions? (n=241)

Cost/price 7%

Time to market 53%

Ease o integration with existing systems 50%

Perormance 0%

Oers a proprietary competitive advantage 37%Availability o skilled resources 5%

Vendor neutrality %

Not applicable to my job role 3%

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Which o the ollowing disruptive technologies have the potential to

orce signifcant business and operating model changes?

(n = 236)

Cloud computing 6%

Mobile technologies 7%

Collaboration technologies 30%

Advanced analytics %

Stream computing %

Web .0 %

Visualization technologies 0%

Supercomputing %

Nanotech/quantum computing 6%

Survey demographics

What type o frm do you currently work or? (n=241)

Vendor 6%

Broker/Dealer %

Asset Manager/Investment Firm 7%

Universal Bank 3%

What size frm do you currently work or? (n=241)

Under 000 employees 5%

000 to 5000 employees %

More than 5000 employees 3%

In which geography are you based? (n=241)

Americas 3%

Europe 3%

Other 3%

Which description best fts your role? (n=241)

IT Executive 6%

IT Specialist or Manager %

LOB Specialist or Manager %LOB Executive 0%

Executive 6%

Other 3%

Methodology

Interviews were conducted via sel-administered web English

questionnaire among SIFMA members. The vast majority o

respondents (3 percent) were rom North America, with the

remainder coming rom Europe and the Middle East.A total o 300 interviews were conducted in 00, 367 in 00,

and 5 in 00 (approximately 6,000 invites were sent in

00, 3,000 invites were sent in 00, and 7,000 in 00)

Brokers/Dealers/Asset Managers/Vendors = 241

Brokers/Dealers = 89

Interviews were conducted May to June , 00

The questionnaire contained questions and averaged

approximately 7 minutes to complete

Signicance testing was conducted at the 5percent

condence level.

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Copyright IBM Corporation 00

IBM Financial Services SectorRoute 00

Somers, NY 05U.S.A.

Produced in the United States o AmericaJuly 00All Rights Reserved

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