Wall Street Project Management Offices Focus on Derivatives

In addition to forcing firms to reexamine their risk management controls, the recent credit derivatives meltdown has given Wall Street's project management offices (PMOs) -- the groups that zealously monitor and sometimes manage the status of IT projects -- a new focus. "A major challenge Wall Street firms are struggling with is the need to develop a derivatives platform," notes Mike McKeon, SVP at IT strategy and consulting firm Booz Allen Hamilton.

"The derivatives business has been growing significantly. Some products are fairly mature, and the technology and processes used for them have matured," McKeon continues. "But for other products, the business hasn't matured and the processes are highly manual."

While many financial services vendors hawk derivatives processing solutions, "Often [vendor] products are just a piece of the puzzle," McKeon adds. "It's a lot of integration work." This is where a PMO comes in -- to manage and lead the efforts to integrate technologies and design new processes to use the technology effectively.

At State Street, a newly formed project management office was heavily involved in the development of a derivatives processing platform that the firm currently is piloting, according to Mike Bullock, the firm's senior vice president of global product management. He notes that State Street expects to go live with the system in May.

The new platform is based on FpML -- the Financial products Markup Language, an XML message standard used by the OTC derivatives industry -- and links into DTCC's DerivSERV and Markit Partners' SwapsWire confirmation and settlements services, Bullock explains. Once a trade is fully FpML-compliant, he says, there's no need for the faxes, phone calls and e-mails that are commonly used today to settle a derivatives contract.

Fostering Adoption

As State Street began developing the derivatives platform in October 2007, Bullock relates, the firm formed a four-person PMO to help with business adoption of this and other projects. The group is responsible for client prioritization and conversion, product architecture, rate cards, operating and technology roles, the operating model, the operating architecture, technology development and technology implementation, he describes. "If there's any software or hardware infrastructure that needs to be set up in our offices around the globe, the PMO works with IT to ensure the delivery of help desks, security or other business continuity needs," Bullock says.

The PMO's role in prioritization helped drive the derivatives processing platform to completion within a matter of months, according to Bullock. "What's important to the business and what we've heard from a product point of view is that derivatives is a top initiative for 2008," he says. "The amount of interest on the part of our clients hasn't let up. We know we are spending money in the right place."
In addition to helping set priorities, the PMO also figures out how to roll out new software programs, such as the derivatives platform, efficiently around the world, Bullock notes. "We invest in products, but, more importantly, we need to get them in the hands of our business and clients as quickly as possible, and we need to do that concurrently around the globe," he says. "It can't be a sequential rollout -- our clients are global and they want to see it Day One."

Meeting Customers' Needs

The PMO, Bullock explains, keeps track of where customers' accounts are based and therefore to which countries a new platform must be immediately extended. It communicates with external and internal customers as products are being built to make sure all concerns and requirements are being met.

State Street's PMO pays for itself in a variety of ways, Bullock says. In the firm's middle-office business, for example, the PMO generates opportunities to provide derivatives processing outsourcing for clients. It's also helping to reduce risk and gain operational efficiencies, Bullock adds, noting that the group provides integrated project reports through an online portal, versus an earlier, scattershot approach.

According to Bullock, the PMO will manage the development and rollout of all new platforms going forward. The templates built for the derivatives processing platform, he notes, will be used for a forthcoming SWIFT messaging platform and a collateral management system, so the best practices discovered during the building of the new derivatives platform can be repurposed.

Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=207200824
Publish Date: April 15, 2008