IBM Financial Services Sector
The 2010 SIFMA-IBM
Executive summary
The technology outlook in the financial
services industry continues to improve,
according to the 2010 Securities Industry
and Financial Markets Association
(SIFMA)-IBM Technology survey.
The survey—in its third consecutive
year—suggested that IT budgets are up in
2010, and that firms 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 significantly lower proportion of firms 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 influence IT investments.
Lack of staff is now seen as the number one
internal challenge to IT strategy, significantly
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
financial markets firms.
Financial Services
Technology Survey
Brighter outlook, tighter reins
In the 2010 SIFMA-IBM Technology survey, almost 250 Wall Street
professionals gave their opinions on the business and IT challenges
facing their organizations. Reasons to be cheerful: the results suggest
that the industry feels the worst of the financial crisis has passed, and
that more budget will be available for transformational projects in
IT—a sure indicator of participants coming out of their crisis-enforced
shells. Almost half of participants (45 percent) are reporting increased
budgets in 2010, versus just 18 percent in 2009. Expectations for
increased 2011 budgets are even more prevalent (51 percent of
respondents). It seems that the industry has turned a corner, as these
figures are essentially the mirror image of those seen in 2009, where 46
percent of participants were reporting lower budgets and only 20
percent were seeing increased money for IT investment. Looking to
the year ahead, the outlook remains positive, with 42 percent of
participants forecasting increased IT budgets for 2011.
Transformational spend remains an important factor, with 46 percent of
respondents classing more than 30 percent of their total IT spend as
“transformational” for both 2010 and 2011. For 27 percent of
respondents, this area will account for more than 40 percent of the total
in 2010. This may reflect not only a net increase in transformational
spend but also a net decrease in non-transformational spend, as banks
continue to trim business-as-usual costs through IT outsourcing. It is
interesting to note that in 2009 more than half of survey respondents
said their companies were spending upwards of 80 percent of their
already-reduced IT budgets on operations, leaving precious little for
transformational spend. This ten-point increase suggests that the worst
of the crisis is behind us. However, companies that were forced to shed
IT staff during 2009 may now be struggling to manage workload: some
76 percent of respondents cited lack of IT staff as an obstacle to project
implementation, making it the number one internal challenge.
IBM Financial Services Sector
While it’s true that economic uncertainty remains the top
external factor likely to impede the implementation of IT
strategy, this was cited by only 72 percent of the Wall Street
professionals surveyed, down from a high of 88 percent in
2009. As in both 2009 and 2008, second place was taken by
short-term earnings pressures, cited by 53 percent of the
respondents.
Where 2010 saw a major shift, it was in the perceived impact of
regulatory reform, with 54 percent of Universal Banks and
Broker/Dealers flagging regulatory changes as an external
challenge (up from 28 percent in 2008 and 30 percent in 2009).
Drilling deeper into this regulatory issue and taking into
account all respondents, the survey found that regulatory
actions related to systemic risk were expected to impact IT
investments most (cited by 61 percent), followed by risk
transparency (46 percent). As might be expected, concerns on
the potential impact of regulation in both these areas are
higher for larger firms, who may both be in line for more
stringent regulations and have greater difficulty in adapting
their systems to meet them.
Areas for IT investment
Unsurprisingly, active areas for IT investment tend to be
related to the industry’s core businesses, with the top three
spots taken by trading, portfolio management and enterprise
risk management (each cited by 45 percent of respondents), the
latter reflecting the survey respondents’ expectation of more
stringent regulatory requirements.
In spite of the ongoing buzz about becoming more
client‑centric, CRM takes last place in terms of active projects
for 2010. This may suggest that firms are merely talking about
becoming more client-centric, but it may also imply that they
are finding other client-related activities more lucrative than
those the respondents would typically categorize as ‘CRM’.
For example, client-related topics feature three times in the
top-ten list of areas for investment in analytics (client - advice,
cited by 22 percent of respondents; client - segmentation/
behavior, 21 percent; client - profitability, 20 percent).
Staying on the subject of analytics, first place goes to
Compliance (37 percent) again reflecting the growing pressure
on the industry from regulatory bodies. The next two areas for
analytics-related investments are Market Risk (34 percent) and
Operational Risk (32 percent), reflecting the focus on risk
management. Interestingly, compliance reporting is seen as a
non-core activity by some respondents, being the number one
choice (28 percent) in a list of 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 feel it may be better (and more
cost‑effectively) handled by a third-party specialist.
Financial Services
Outsourcing can reduce operational IT expenditure and free
up budget for transformational spending, and may be an
increasing necessity for companies that shed IT staff during
2009. The survey suggests continued interest in the
outsourcing of business processes, with 90 percent of
respondents saying that they will have at least one process
outsourced or handled via a shared service in 2010. After
compliance reporting, the top areas for outsourcing are risk
analytics (25 percent) and fraud detection (22 percent).
Firms continue to refine the mix between in-house and
external software: 44 percent of respondents show a preference
for choosing custom-developed applications rather than
packaged software. The potential competitive advantage of
developing proprietary software is cited by 37 percent of
respondents—though cost is far and away the most important
consideration in build-versus-buy decisions, cited by 72
percent of respondents.
As in 2009, respondents chose cloud computing (61 percent, 10
percentage points up from 2009) and mobile technologies (47
percent) as those most likely to bring significant change in the
industry.
Summary of findings
The industry sees a brighter horizon for IT in 2010 than it did
in 2009: more firms are growing their budgets and increasing
the proportion spent on transformational projects. Economic
doubts remain, but fewer respondents see them as an obstacle
to IT, with regulations an increasingly influential area.
Financial services firms continue to turn to outsourcing -
perhaps not least because of a lack of IT staff—and interest in
both cloud computing and mobile technologies continues to
grow.
IBM Financial Services Sector Financial Services

Appendix: Survey Responses 2010 Which three of the following internal challenges are most likely to
impede your firm’s ability to implement its IT strategy?
Compared to 2009 has your 2010 IT budget...? (n = 241) (n = 241)

Increased 45% Lack of IT staff/human capital 76%

Remained the same 21% High implementation costs 63%
Decreased 20% Business/IT disconnect 45%
Unsure 14% Governance/senior management 41%
Inadequate in-house technology 37%
Policy changes 28%
Compared to 2010 do you believe your IT budget will increase or
decrease or remain the same for 2011? (n = 241)

Which three of the following external challenges are most likely to

Increase 51%
impede your firm’s ability to implement its Information Technology
Remain the same 31% strategy? (n = 89; Universal Banks, Broker/Dealers)
Decrease 5%
Unsure 13% Economic uncertainty 76%
Short-term earnings pressures 55%
Regulatory changes 54%
What percentage of your 2010 IT budget is allocated for
Changing client demands 39%
transformational initiatives vs. on-going operations? (n=180)
Lack of suitable partnerships/vendors 24%

50 percent or more of budget 19% Immature technology 19%

40 percent of budget 8% Increased competition 15%

30 percent of budget 19% Limited growth opportunity 13%

20 percent of budget 29%

10 percent of budget 19%
Which of the following future regulatory actions are likely to have
None 6% the most profound effect on IT investments? (n = 241)

Systemic risk regulation 55%

What percentage of your 2011 IT budget is allocated for
Risk transparency 46%
transformational initiatives vs. on-going operations? (n=167)
Global regulatory harmonization 33%
50 percent or more of budget 13% Security 30%
40 percent of budget 10% Pricing transparency 26%
30 percent of budget 22% Short sale price test rule 24%
20 percent of budget 35% Cost basis reporting 24%
10 percent of budget 16% Conflicts of interest 22%
None 5% Capital and solvency 21%
Derivatives trading & clearing 12%
Sustainability 8%
IBM Financial Services Sector Financial Services

In which business areas does your company have significant active Which processes are your firm likely to outsource or utilize an
development, new implementation, or other improvement projects? external shared service for in 2010? (n=241)
(n = 241)
Compliance reporting 28%
Trading 45% Analytics for risk 25%
Portfolio management 45% Fraud detection 22%
Enterprise risk management 45% Order management 18%
Order management 43% Allocations 18%
Trade reporting 35% Trade reporting 17%
Trade execution 35% Portfolio accounting 16%
Information security 34% Affirm/Confirm 13%
Decision support 29% Portfolio management 13%
OTC derivatives 27% Decision support 12%
Portfolio accounting 25% Other 17%
Settlement 22% Don’t know/refused 3%
Clearing 22% None 10%
Allocations 21%
Internal cross 15%
Affirm/Confirm 14% On a scale of 1 to 5, where 1 represents externally packaged solutions
Custody 13% with no custom internal development, and where 5 represents
completely custom internal development with no externally packaged
CRM 2%
solutions, which does you firm most prefer when implementing IT
solutions? (n=227)
Which of the following analytics, if any, do you expect your firm to
increase investment in over the next year? (n=241) 1—packaged solutions with no custom development 7%
2—leaning towards packaged solutions 22%
Compliance 37% 3—balance between packaged and custom solutions 26%
Market risk 34% 4—leaning towards custom development 31%
Product development 34% 5—completely custom internal development 13%
Operational risk 32%
Trading - equities 28%
What are your top-three criteria when deciding between ‘build’ and
Trading - fixed income 27%
‘buy’ IT solutions? (n=241)
Credit risk 27%
Client - advice 22% Cost/price 72%
Client - segmentation/behavior 21% Time to market 53%
Client - profitability 20% Ease of integration with existing systems 50%
Internal fraud and surveillance 15% Performance 40%
External fraud and other crimes 13% Offers a proprietary competitive advantage 37%
No increase 8% Availability of skilled resources 25%
Vendor neutrality 12%
Not applicable to my job role 3%
IBM Financial Services Sector Financial Services

Which of the following disruptive technologies have the potential to Survey demographics
force significant business and operating model changes?
(n = 236) What type of firm do you currently work for? (n=241)

Cloud computing 61% Vendor 46%

Mobile technologies 47% Broker/Dealer 24%
Collaboration technologies 30% Asset Manager/Investment Firm 17%
Advanced analytics 29% Universal Bank 13%
Stream computing 29%
Web 2.0 28%
What size firm do you currently work for? (n=241)
Visualization technologies 20%
Supercomputing 18%
Under 1000 employees 54%
Nanotech/quantum computing 16%
1000 to 5000 employees 14%
More than 5000 employees 32%

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

Americas 93%
Europe 3%
Other 3%

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

IT Executive 26%
IT Specialist or Manager 24%
LOB Specialist or Manager 21%
LOB Executive 20%
Executive 6%
Other 3%

Methodology

• Interviews were conducted via self-administered web English

questionnaire among SIFMA members. The vast majority of
respondents (93 percent) were from North America, with the
remainder coming from Europe and the Middle East.
• A total of 300 interviews were conducted in 2010, 367 in 2009,
and 512 in 2008 (approximately 16,000 invites were sent in
2010, 13,000 invites were sent in 2009, and 17,000 in 2008)
–– Brokers/Dealers/Asset Managers/Vendors = 241
–– Brokers/Dealers = 89
• Interviews were conducted May 18 to June 2, 2010
• The questionnaire contained 19 questions and averaged
approximately 7 minutes to complete
• Significance testing was conducted at the 95percent
confidence level.
© Copyright IBM Corporation 2010

IBM Financial Services Sector

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