Trading Spaces When the Lights Go Out

Power Outages and Disease Top Disaster Recovery Worries

February 2007

Disaster recovery and business continuity planning are essential for financial services firms, partly because they don't want to see any interruptions in their business if the worst should happen, and partly because of demands from regulators. Business continuity plans have been through some stress-testing for terrorist attacks and hurricanes in the past few years; and most large equities firms are now better prepared to deal with similar issues should they happen again. But, as if brokerage firms didn't have enough to worry about, there are two new worries to add to the list of potential disasters-electrical power outages and pandemic-which they may not be ready for.

Trading and broking firms have long realized the importance of having backed-up data and remote sites for their traders and clearing and settlements staff, equipped with PCs, phones, a local area network and access to electronic systems. This is the classic version of business continuity-a dedicated or shared offsite location.

A lighter and less expensive version, which enables remote access to applications and desktop functions, has been made possible by newer technologies such as secure virtual private networks (VPNs). These allow critical staff to work from home or another site until the primary office is up and ready for business again.

Most trading houses would need both solutions-a dedicated or shared location for traders, back-office and some middle-office staff, as well as remote access for other back-office and administrative personnel. This means that disaster recovery plans have to span back-office settlement and clearing all the way up to the front line: the trading desk.

Flu Season

One of the most pressing concerns today is a possible pandemic; this has been predicted by scientists for a few years and an outbreak of avian flu ranks as the biggest concern. In the case of a pandemic, few staffers would want to go to a remote location and risk getting sick and possibly infecting their families.

"In this case you have to use remote technology," says Alexander Tabb, practice leader and managing director for consultants the TABB Group's crisis and continuity services practice.

Solutions such as Citrix Systems' offering, code-named Project Kent, provides dispersed workers with the ability to connect to applications, data and people if they're not at their workplace. It is offered as an integral part of IBM's Virtual Workplace Continuity service product and integrates emergency notifications and employee updates, as well as access to applications, communications and collaboration.

Philippe Jarre, vice president of business continuity and resilience at IBM, says this is mainly a back-office solution, and that he believes traders will continue to work in back-up locations as a team until technology better supports trading from home.

"We are going to work with financial services firms to see how far we can push the front office into home-based solutions," Jarre says. For traders to do their job more effectively from home, he notes, they will need new technology so that they can work as a group. That would mean installing real-time cameras, which is very expensive.

SunGard offers remote solutions to customers as well, through a secure virtual private network connected to SunGard's centers. David Palermo, vice president of marketing at SunGard Availability Services says: "What if your data center is closed due to flu? You have to be able to remotely access back-office IT systems, and you'd need a secure virtual private network so your people can work from home."

Trading is where these firms make their money. And, because technology has changed so much, people are not tied to one location anymore. Palermo is not sure the industry is ready for an avian flu, though: "100 percent plan for the last disasters."

But not for future possible ones, he notes.

Tabb disagrees, saying avian flu has had a lot of press: "A lot of firms are coming to grips with it. I don't think your house has to burn down before you take out home insurance."

Smaller sellside and buyside firms can usually rely solely on remote technology to maintain their continuity, and don't necessarily need dedicated workforce back-up centers, Tabb says.

Powerless

Bird flu isn't the only modern headache in terms of business continuity. Information technology is 100 percent reliant on electricity, and electricity is not always as reliable as it could be. In 2003 most of the northeastern U.S. and parts of Canada lost power for days, and in early November of this year much of Europe lost power for a few hours.

When electrical outages occur, most of the bulge-bracket firms have emergency generation power and fuel supplies in storage, along with plans for additional fuel supplies if necessary. But information technology is using increasing amounts of electricity. Power-hungry servers could cause problems for firms trying to back up their own systems.

A Gartner study, Business Continuity Planning Survey Results, presented at the Gartner IT Security Summit in 2006 notes that more than 32 percent of financial services firms want their electricity restored within four hours, and another 31.3 percent want it restored before 12 hours have passed.

SunGard's Palermo says: "When it comes to the availability of systems, the bar has never been higher." Regulations are a factor, but firms are going above and beyond those requirements because they don't want to lose clients due to systems being down. Based on studies conducted by SunGard and analysis firm IDC in 2003, monthly downtime of 20 hours was an acceptable target back then. Today that target has dropped to 11 hours. And this year, clients are expected to want no more than nine hours of downtime per month, including planned downtime for maintenance. SunGard is working on designing 24 strategic recovery centers in major cities worldwide, with the highest levels of security and back-up power it can muster. "The sites can go one month without public power supply," Jarre says.

Tabb says the goal is to get clearing and settlements back online within two hours of any interruption, eventually trying to achieve zero interruption. If clearing and settlements are disrupted, "the ripple effect degrades markets very quickly," he says.

Spending

Even though overall IT budgets are flat, firms are still spending more on disaster recovery each year. Gartner's study says in 2003 only 7 percent of firms surveyed had budgeted more than 10 percent of their total IT budgets for business continuity management. In 2005 it grew to 16 percent, and Gartner says that in 2006, it represented 25 percent of their budgets.

The reason is mainly regulations, says Tabb, but money talks and is still one of the driving forces behind the spending: "The bottom line is keeping your business alive, because that's what pays the bills."