The Chinese curse about living in interesting times couldn't be more applicable today in the securities industry. The forces behind the changes that we see daily are significant and growing. There are several major business trends that affect the way we manage our businesses and how we can prepare to meet the related operational and technical challenges.

Clients increasingly demand electronic connectivity and control over their accounts and transactions. This has led to a sharp increase in the use of the Internet and the rise of the Electronic Communications Networks.

Mergers, competition and alliances between firms that have often been historic competitors have resulted from a constant thinning of margins and the pressure to profit. Mergers between banks and brokers have caused these combined firms to seek additional ways to cross sell products and services. Until recently, most have not been successfully able to make this transition.

Demographic shifts in the US and the world have affected the securities industry as funds have shifted from bank savings accounts to investments, and as people are increasingly preparing for retirement by investing in mutual funds.

This massive infusion of funds will probably peak sometime in the next ten to fifteen years, and at that point the trend may reverse itself as people begin to withdraw funds. These trends are also affected by the way the international markets are evolving. Individuals and institutions see opportunities through increased cross-border investment, as well as the growing range of securities that meet investors' varying needs for risk and returns. Securitization of cash flows and the increased complexity of instruments has increased the pressure on operations and IT departments to perform faster and with greater accuracy.

Because of these trends, the securities industry has an increased need to manage risk and expense, and to focus more on resolving the increased number of fails and un-affirmed trades. The aging US infrastructure, a fragmented international marketplace and the inefficient use of capital are all major issues affecting how firms operate today and their plans for the future. Some of the other issues that cause inefficient processing are securities that are listed on multiple exchanges, standards fragmentation, a lack of global standards and multiple redundant processing steps. There are also a variety of processing demands that affect firms, such as speed and capacity demands, accounting and reporting complexity and extended hours trading.

To meet the demands of these US and international trends, securities firms are moving rapidly towards Straight Through Processing by implementing ever-increasing levels of technology, adopting generic standards and industry processing best practices.

But the changes that are needed to respond to these trends are not going to happen automatically. There are numerous barriers to change, including a firm's natural inertia versus its need for change, the large number of firms that are involved in the industry who all have to change simultaneously, as well as the separate learning curves that exist for individual firms.

The additional barriers that firms will have to address when preparing to respond to these trends involve several internal technology issues such as the firm's legacy applications, batch systems, multiple platforms and technologies, inefficient interfaces between applications, and the overall expense to implement technology. Operational issues include paper input and the related manual processing, not all of the required data is in electronic form, and reconcilement and data access need to become more efficient.

And, in addition to the internal issues, there are several external issues that must be overcome. The primary issue is the level of connectivity between firms and between firms and the infrastructure. Once connectivity has been established, to ensure accurate external communication, the industry has to improve the content and timeliness of settlement instructions, as well as the standards and formats (SWIFT, FIX, DTC, XML, etc.) that are used and eliminate the current uneven implementation of these standards.

The securities industry has been attempting to respond to these market forces, and in doing so has created some events and trends that require a response by firms in the industry. Some of these industry events include Decimalization, ISO 15022, T+1, GSTPA, and the DTCC/Thomson merger. The industry trends are clearing agencies consolidation, exchange consolidation, vendor software suites, and an increased industry association focus.

To respond to these many forces, firms can draw upon several technologies. The Internet, along with the Internet Protocol (IP) and thin client architecture, provide firms with a new and cost effective way to distribute applications and information worldwide. While security concerns remain, these problems will eventually be resolved, and probably replaced with new concerns, just as all other forms of technology go through cycles of improvement and risk.

Real time processing tools are becoming available across platforms and the development tools and infrastructure applications for real-time applications are increasingly cost effective. Increased bandwidth and telecommunications speed makes it possible to move ever-larger amounts of information in a timely manner, with the assurance that the complete message will arrive.

Queue-based and publish/subscribe middleware offers many opportunities for firms to re-architect their applications and to increase the efficiency of distributing information among applications and platforms. As workflow software is added to middleware, firms will be able to finally automate the last pockets of manual activity and exception processing that have plagued business for years.

But to effectively use these technologies, firms have to overcome some additional barriers. The wide range of choices that have been available have made selection difficult. Legacy systems continue to absorb resources that could be better deployed elsewhere, and technology's lack of clear successes and requirement for continuous technology upgrades causes business managers to be cautious about additional IT spending to maintain these old platforms.

In summary, we have more tools than ever before, and an increasing number of demands. Effectively meeting these demands will require the creative application of scarce resources and a willingness to work together to solve systemic industry problems.

Hal McIntyre is the Managing Partner of The Summit Group, a New York consulting firm specializing in the securities industry, 212-328-2500 X233; email: hal@tsgc.com; web: www.soforum.com.