Transparency: Job #1 for 2013
It was a great week to be a political junkie. We saw pure American pageantry this week when the president of the United States took the oath of office for his second term. And the fact that it took place on Martin Luther King Day and the commander in chief is our first bi-racial leader makes it hard not to be proud of this country.
On the campaign trail a few short months ago, Wall Street and its actions were a hot topic. As a large part of the country's economy, both candidates debated the economic collapse of 2008 and the ensuing recession, the bailout for Wall Street firms that ignored the risks of selling mortgages as securities, and the bonuses for the men and women who almost brought the economy of the U.S. and possibly with it the world to its knees. Another topic was the Dodd-Frank reforms. President Obama was proud of his sweeping financial rules while GOP challenger Mitt Romney promised to repeal them in order to bring about a faster economic revival.
Following the inauguration of President Obama, it is clear that Dodd-Frank is here to stay and will be a major challenge for CIOs and their tech teams on Wall Street.
And it's not just Wall Street giants like Goldman Sachs, Morgan Stanley and JP Morgan. The men and women who keep hedge funds, exchanges, dark pools and other financial service providers up and running have their work cut out for them. In short, they have to achieve something that the global capital markets have been loathe to provide for decades: transparency.
CIOs must work to make sure that all trades and actions around those trades - from the market data to the internal and external communications about those trades - are available to regulators if something should look suspicious. And in the wake of the 2010 Flash Crash, firms need to know when such an occurrence is about to take place. It's interesting to note that the CEO of one company that experienced a mini-flash crash said the firm's messaging systems saw a spike in activity of more than 100 percent. It's like the moments before a tsunami. All the water along the shore recedes to the horizon moments before the giant wave crashes down.
CIOs should also prepare for HFT speed limits even as their traders scream for faster and faster methods to trade. They also need to test their new algorithms completely before they are deployed. If there is one lesson from the financial technology blunders of last year, Murphy's Law is more true than ever. If something can go wrong, it surely will. Just ask the truly smart people at Nasdaq, BATs and Knight Capital.
So, with Dodd-Frank not going away anytime soon and, as more and more of the rules and regulations come into effect, a CIO should make plans to work even more closely with the risk team and the compliance officer. After all, you folks are the only thing standing between your firm's financial fortune and financial flameout.