As President-elect Barack Obama reluctantly gives up his BlackBerry out of concern about his privacy and for fear it could leak state secrets, executives in the financial sector are also grappling with how best to manage their wireless communications — both among senior executives and among rank-and-file traders, many of whom are addicted to text messaging. When the Financial Industry Regulatory Authority — or FINRA, the body that sets industry standards — modified its e-mail policies in December 2007 to require firms to implement stronger controls over wireless messaging, one big investment bank in New York, which prefers to remain nameless, reacted bluntly but practically by banning all communications other than those via landline or by e-mail until it could find a solution, says Patrick Corr, vice president of sales at Onset Technology.
In May, Waltham, Massachusetts–based Onset launched an expanded version of its METAmessage technology, which manages wireless devices used across large enterprises. The new edition, Advanced Compliance Tool, allows organizations to scan, block and archive wireless texting, depending on a subscriber firm’s policies (Onset does not offer an easy way to record voice communications from mobile devices, although it is considering doing so).
For Onset, meeting the new requirements entailed extending current capabilities.
“We had an archiving solution in place that captured messages from handheld devices and sent them to existing archiving,” notes Corr, “but we didn’t have a way to control the message — who is speaking to whom and what they are sending.”
For the bank that instituted the ban, the service came none too soon. “Allowing business communications without adhering to all applicable laws and regulations is not an option,” says a senior information technology manager at the bank. “Turning off viable communication methods is a really bad option. Advanced Compliance Tool will allow me to enable my customers to talk to their clients using PIN, SMS and MMS while maintaining our compliance program.”
Though PIN (personal identification number), SMS (short-message service) and MMS (multimedia messaging service) are gibberish to Luddites, they are the stuff of everyday communication for hard-core BlackBerry users, many of whom work in the financial sector.
T.L. Neff, executive vice president of client services at Pyxis Mobile, expects hedge fund managers in particular to use services offering management of wireless messaging. “They tend to be a bit more mobile than the typical buy-side portfolio manager,” points out Neff, whose firm, like Onset, is based in Waltham and provides wireless applications to financial firms. “They might work from a home office, and because they are dealing with volatile markets and often operate 24/7 covering investments in different markets, they want 24/7 access to what’s going on.”
Onset’s Corr suggests that whenever regulators change the rules — as when the on-again, off-again ban on selected short-selling became a moving target this year — hedge funds should take pains to see that relevant communications are recorded so that they can prove compliance if challenged.
“You want your own side of the story,” offers a European risk manager, who, like the executive at the New York bank, requested anonymity. He says his firm’s traders occasionally make deals over mobile phones, but that the practice makes him nervous. Though the trades are recorded by the counterparty, the risk manager says he would prefer they be recorded from his side as well.
Onset has several competitors, including Paris-based Orange Business Services, which helps subscriber companies set up voice-traffic and text-message archiving.
Orange’s business grew out of the development of a disaster-scenario personal-computer-based interface called Unified Mobile Trader, which lets users work remotely through their trading-floor portals from a hotel or home in the case of a cataclysmic event, says Thierry Charvet, marketing manager for trading solutions at Orange. (Both Onset and Orange use technology developed by NICE Systems in Ra’anana, Israel.)
Charvet explains that a secure telephone line is created that can be used for a conference call between a trader (from a cell phone or landline), his or her counterparty and a recording device. Inherently valuable in this setup, Charvet asserts, is that “voice-only networks are extremely secure.”
William Vines, a sales consultant with London-based Compliant Phones, which specializes in financial sector communications, says the Financial Services Authority, the main U.K. regulator, will probably impose restrictions similar to the ones established in the U.S. and that firms are already retooling. He notes that hedge fund managers are especially motivated to modernize because of their mobility.
Orange’s offering is so new (it launched in September) that it has few subscribers, but Charvet says the likelihood of even stronger government regulation in the U.S., where there is a groundswell of support for it, will spur broader adoption of such technology.
In issuing its guidelines a year ago for mobile messaging, FINRA asserted in language that may have seemed bureaucratically overwrought but serious nonetheless that it expected “a firm to have supervisory policies and procedures to monitor all electronic communications technology used by the firm and its associated persons to conduct the firm’s business.”
Although the rules don’t apply to hedge funds (unless they are members of FINRA, and the vast majority are not), they do apply to their trading counterparties, which will probably soon be recording all forms of communication. As a result, hedge funds would be wise to maintain independent records of whatever is said and done. Otherwise they may be left in the awkward and potentially vulnerable position of having little to fall back on besides someone else’s version of events should a trade be challenged by regulators or in court.
