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© 2007 IBM Corporation Next Generation Grid: Emerging technologies poised to revolutionize financial markets Kevin Pleiter Director – Global Financial Services Sector
© 2007 IBM Corporation FMA | October, 2007 2 Companies need to grow aggressively by leveraging differentiating technology Financial Market Analytics
© 2007 IBM Corporation FMA | October, 2007 3 Financial Services Sector Trends, 2007-2015 Informed clients are increasing demands Global integration is reshaping industries Regulatory burdens are growing Innovation is becoming imperative FSS Industry TrendsChallenges Data Explosion Managing Complexity Managing Business Integrity Collaboration & Partnering Speed & Transparency
© 2007 IBM Corporation FMA | October, 2007 4 Electronification will target all asset classes… 1 Average Daily Trade Volume (millions) (10 year CAGR 19%) Security brokers and services personnel ('000) (10 year CAGR 3%) Average Daily Trade Volumes vs. Headcount, 1994-2004 (Millions of Shares; Number of Employees (000), Volume per Employee) Number of US and European Electronic Trading Systems 1, 1997-2004 (Number of Electronic Trading Systems by Type of Market Supported) Note: 1 Totals may exceed the actual number of systems listed since some systems cover multiple product lines Source: The Bond Market Association; Reuters; SIA; IBM Institute for Business Value analysis Volume of daily shares traded per employee (10 year CAGR 15%)
© 2007 IBM Corporation FMA | October, 2007 5 …causing agency margins to die and value to shift toward riskier activities Note: 1 Agency is risk free intermediation of a trade and principal is risk assuming intermediation of a trade Source: IBV profit map model (see slide 18 in this study) 1 Agency vs. Principal 1, 2004 and 2015 (US $ Billions, Margin Percentage) Firms unanimously agreed that proprietary trading will be an increasingly important source of profit over the next ten years; regulators indicated they will not prevent it. 2004 2015 Revenue Share 50% Financing and Structured Products Revenue, 2004 and 2015 (US $ Billions) Financing Structured products CAGR 11% Revenue Share 50% RevenueMargins Revenue Share 30% Revenue Share 70% Revenue Share 50% Revenue Share 50%
© 2007 IBM Corporation FMA | October, 2007 6 The data center energy, power and cooling challenge is a major hurdle for the ongoing success of Financial Services Grids Power Use 35 30 25 20 15 10 5 0 Chiller/ Cooling Tower Information Technology LightingSwitch/ Gen Uninterruptible Power Supply Power Distribution Unit Computer Room Air Conditioner Humidifier Cooling systems Electrical and building systems % of total data center electricity use
© 2007 IBM Corporation FMA | October, 2007 7 These Business and Technology imperatives result in the following Technology trends in financial markets globally Aggressive adoption of Model and Algo driven trading + Demand for real time portfolio and risk management + Massive build out of computing infrastructure Next Generation Grid Powered by Hybrid Computing and Stream computing enabling the use of Data and Analytics as a Weapon
© 2007 IBM Corporation FMA | October, 2007 8 Specifically Financial firms analytic infrastructures are challenged to support ongoing business growth in five dimensions Application Management Workload Management Data Management Systems Management Hardware Management Inconsistent and unrepeatable Inability to quickly deploy new apps High cost model Lack of scalability and Performance I/O bottle necks and geographic data dispersion issues not addressed Data center Crisis Cost, utilization, power and space High cost, manual and reactive No automated / integrated feedback
© 2007 IBM Corporation FMA | October, 2007 9 The need for speed Exploit advanced technology to accelerate performance
© 2007 IBM Corporation FMA | October, 2007 10 Hybrid computing powered Grids incorporating the Cell Broadband Engine (Cell/B.E.) Ten year collaboration with Sony®, Toshiba® –Extended through 2012 IBM BladeCenter® QS20 system introduced September 2006, QS21 in 2007 and QS22 2008 –Just another Blade –Operates in standard BladeCenter® chassis –Infiniband, Gig-E and 10GigE support –Runs Redhat Linux and a host of other standard industry applications Cell/B.E. Highlights –Significant performance advantages over traditional systems –64-bit Power –Streaming Processors –Low power consumption –Real-Time –Security Enabled
© 2007 IBM Corporation FMA | October, 2007 11 Cell use cases in the Financial Service Sector Various domains –Fixed Income and FI Derivatives, Equities and Equity Derivatives, Risk Management, Portfolio Trading, Algorithmic Trading and Analytics Functional areas –Pricing of Options, Swaps, and Futures –Interest Rate Modeling, CDO, MBS –Path Dependent Calculations –Risk evaluations – VaR, EPE, PCE, etc –Stream Processing - market and analytic data
© 2007 IBM Corporation FMA | October, 2007 12 Typical Algorithms being deployed in Cell grids Algorithms typically used include –Analytical and approximate (crude) solutions through to Black-Scholes –PDE solvers (e.g.,Crank-Nicolson) –Householder transformation, Cholesky decomposition, SVD, PCA –Monte Carlo Simulations –Statistical Analysis Standard Library routines being called –BLAS, LAPACK, FFT –Random Number Generation (Sobol, MT, Box-Muller, Moros Inversion) –Math Librarys (R, NAG)
© 2007 IBM Corporation FMA | October, 2007 13 Rapidly growing Application Development, Math library and Grid ecosystem for Financial Services
© 2007 IBM Corporation FMA | October, 2007 14 x86 Linux master cluster Cell/B.E. accelerator cluster Hybrid Supercomputing Reference Targeting 1.4 petaflop peak, 1.0 petaflop sustained performance
© 2007 IBM Corporation FMA | October, 2007 15 For more information download How much is a microsecond worth? at www.ibm.com/financialmarkets
© 2007 IBM Corporation FMA | October, 2007 16
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