Not since the boom years of the late '90s have we seen the sheer number of innovative technologies and products enter the market. From blade servers and grid computing, to collaborative technologies and portals, to the surge of algorithmic trading and derivatives, the securities industry is embracing - even clamoring for - new ways to grow its business in a much more cost-effective manner. Perhaps signaling a paradigm shift in how the securities firms will operate going forward, the majority of these ground-breaking changes have an element of efficiency and cost-effectiveness to them, making them an easier sell in the corner office and the boardroom.

Cost Savings Sell Innovation

As someone who is always looking for the silver lining, I am pleased to see that the industry is benefiting significantly from something adopted during the last three years: nearly every technology decision is now made the way most business decisions are made - with return on investment (ROI) in mind. "If I invest in this technology or product now, what will I get in return and when?" Unlike any time prior to 2000, that question is now asked - and expected. As the decisions regarding technology continue to migrate out of the technology divisions and into the business lines, CIO's and technology executives have become more adamant about finding cost-effective ways of growing their business through technology acquisition.

Let's take some of these innovations and see how they are providing multiple benefits to the organization, particularly around cost-efficiency:

- Blade Servers. Became the darling of every large (and some small) securities firms over the last couple of years by providing the ability to replace an aging "server farm" with less expensive, easier to maintain components. Firms realized improved performance and easier/cheaper maintenance, all while reducing costs.

- Grid computing. By harnessing the latent processing power of many standard computers, firms are able to achieve high-demand computing without laying out the capital previously required were they to buy, say, super-computing platforms.

- Derivatives. One example (and there are hundreds) of how derivatives are being used to reduce expenses while providing growth is in the use of index futures as a "parking lot" for uninvested cash. Investment managers with a large inflow of cash who previously needed to settle for standard returns on cash instruments can now employ index futures to put their investors' money to work in the market immediately, not worrying about foregoing for even a day what they are paid to do: invest their clients' cash in the markets. The highly liquid, highly available nature of these instruments also makes them a cost-effective way to invest.

- Algorithmic Trading. While still in its infancy of adoption, algorithmic trading has captured the attention of securities and investments firms, promising to deliver a new way of trading that reduces market impact and finds the best price at any given time. By combining intelligent order routing with real-time pricing analysis, firms are able to find the best market faster and more efficiently than before.

These are but four of the many innovations propelling the securities industry to its next growth spurt. While we didn't discuss others, such as collaborative technologies, outsourcing/ASPs, expirationless options and portals, it is clear that innovation is back - hopefully to stay!

PERSONAL STATS

Rob Hegarty is the vice president of securities and investments research at TowerGroup, a research and advisory firm focused on the strategic use of information technology in the global financial-services industry. Hegarty's group focuses on technology trends in brokerage and asset management.

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