A consortium of eight Wall Street firms is about to transform the way buyers and sellers of fixed-income securities do business using what, until recently, has been a grassroots technology: instant messaging. Traders who now use E-mail and rows of phones to manage a crush of information will have a new tool that promises even greater speed and efficiency. That is, if communication overload doesn't make things worse.
Starting this week, CS First Boston, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Salomon Smith Barney, and UBS Warburg will extend an ambitious multicompany instant-messaging network begun last year to 2,000 institutional investor clients. The goals: greater customer convenience, faster communication, and improved efficiency via an archived system that can be audited in case a record of communications is needed.
The deployment is based on Communicator Inc.'s Hub IM instant-messaging service, which securely connects businesses without requiring them to use a common E-mail client or server. The service ties into the Wall Street consortium's portal, Bond.Hub, which is also hosted by Communicator and links participating dealers' Web sites. It contains a federated directory that controls access to each firm's proprietary customer data.
"If clients are going to be communicating with us via instant messaging--and they are--then this fits the bill," says Vic Simone, managing director of E-commerce at Goldman Sachs.
The firms had to strengthen ties among members of the financial trading community and establish trust before putting the instant-messaging system in place. Once assured that their data would be safe, it was easier for dealers to recognize the value of creating electronic communities around their relationships with common customers.
"Your customers deal with your competitors, and they don't want systems that only allow them to deal with one company," says Leo Schlinkert, CEO of Communicator, in White Plains, N.Y. Along with other Communicator executives, Schlinkert worked in the securities industry before starting the company three years ago.
Jim Craige, managing director with Salomon Bros. Asset Management, is a fan of the instant-messaging setup. Craige buys fixed-income securities on behalf of institutional investors, calling salespeople to make purchases or ask questions. What should take a few seconds often takes much longer, he says, as the salesperson on the line rattles on about the previous night's Knicks loss or tries to convince him to consider a bond issue.
With instant messaging, that doesn't happen. Having a secure connection to the network of dealers with whom he's in constant contact lets Craige take care of business faster, which is why he's pitching its value to the traders, portfolio managers, and analysts in his unit. "It drastically cuts down on the time it takes" to know the status of transactions, he says.
Hub IM makes things so easy for the buyer, Craige adds, it could wind up separating star salespeople from the rest of the pack. The more-successful salespeople could find they're able to take on more work as a result of instant messaging's efficiencies. "Three months from now, some of the salespeople could be hawking pencils on the corner," he says.
Centrally managed IM deployments have just begun to take hold in business, says Aberdeen Group analyst Dana Gardner. Much of the momentum is tied to the fact that recent college graduates have developed an affinity for IM. Technology managers have had to balance the realization that instant-messaging is a preferred communication technique of young employees who have concerns about a lack of control over ad hoc tools.
It's only recently that enterprise products such as Lotus Development Corp.'s Sametime and Microsoft's Exchange 2000 Instant Messaging Service have started taking on the security and archiving capabilities that IT departments want, and new deployments are becoming more common. Lotus, for example, has extended the U.S. Navy's use of Sametime and Lotus' Domino server to allied ships so British, Canadian, German, and New Zealand forces can collaborate during Operation Enduring Freedom in Afghanistan.
But Sametime is limited in business-to-business environments because of its dependence on Lotus' Domino server and Notes E-mail client to achieve effective integration, says Aberdeen analyst Gardner.
Microsoft's Exchange 2000 Instant Messaging Service doesn't yet offer the security needed for worry-free business-to-business collaboration. However, Microsoft is taking steps to address the need for message archiving: In February, it licensed technology from IMlogic Inc. that will let the company add archiving to its next-generation product. IMlogic last week secured $3.75 million in funding, partly to build new application-access features for its software.
The securities-industry project is notable for its ability to deliver secure messaging beyond internal firewalls. It's the latest addition to a secure, 2-year-old environment that provides fixed-income buyers with single sign-on access to high-value content through Bond.Hub and SyndicateHub, a bulletin board of new fixed-income issues. The consortium's Hub IM deployment leverages Bond.Hub's federated directory for permitted data access, keeping control in the hands of the dealers--a crucial consideration. "We've spent 100 years accumulating our client list," says Simone of Goldman Sachs. "We're not about to give it away."
The eight firms' agreement to share a directory was a leap of faith, says Ken Pigaga, managing director of the E-investment banking group at JPMorgan. But it was also crucial to creating an open messaging environment for dealer-to-customer, customer-to-customer, and dealer-to-dealer communication. "We're commingling our customer and dealer communities into one shared address book," Pigaga says. "That requires a sea change among the dealers."
Hub IM lets thousands of users, ranging from salespeople and analysts to traders and portfolio managers, bundle instant messages with the portal's secured content, which includes news, research reports, and analysis. The service also provides a secure collaborative tool for conducting private meetings among multiple participants, easily initiated through the Hub IM interface and open only to those who are explicitly invited.
The consortium chose Communicator's instant-messaging technology because it's the most secure and easy-to-archive offering on the market, says Goldman Sachs' Simone. The system doesn't let users assume aliases, which ensures that they can be verified against the directory, and that users know that the people messaging them are who they say they are. The way Communicator has combined messaging, content, collaboration, and the federated directory is unique, says Gardner--but he adds, "It's a harbinger of things to come."There are potential concerns, however. One thing that has kept deployment of instant messaging a low priority among business managers is the perception that it can distract workers from more critical tasks. Whether the benefits of Hub IM outweigh the drawbacks remains to be seen, says Kim Cross, a VP at Morgan Stanley Investment Management. Cross, who's a client of five of the Bond.Hub participants, says the new instant-messaging offering presents a dilemma because financial firms already depend on the Bloomberg Professional service as their information lifeblood. While Morgan Stanley's buy-side employees have only just been introduced to Hub IM, it may ultimately prove to be unneeded communication clutter. "We have our internal E-mail, Bloomberg, and now Hub IM,' Cross says. "All you're doing all day is answering messages."
And there's a difference of opinion brewing between dealers and buyers about the system's potential as a conduit for closing transactions. Most dealers aren't looking at it as a sales channel. "There are certain types of communication that are perfect for instant messaging, and certain types that are perfect for E-mail or phone," says Nancy Wohlbruck, director of E-commerce for the fixed income division at Salomon Smith Barney. Transactions, she says, fall into the E-mail and phone categories, and Simone agrees.
But Craige says it's futile to resist the idea of doing transactions through Hub IM. He's already completed a handful of transactions on Hub IM in the few days he's been using it. "If the customer wants to do something, then the dealers will do it," he says, "or they'll be out of business."