Technology will drive the securities industry toward globalization, said Philip Purcell, chairman and CEO of Morgan Stanley, Dean Witter, Discover, at last week's Securities Industry Association conference in Boca Raton, Fla., and to that end his firm has allocated $1 billion for tech expenditures in 1998.
Technological applications will play a large roll in the industry's global pursuits, and Morgan Stanley's ten-figure tech budget will be spent "on things like software to support global trading, currency links and product links, and analytics for our derivatives," Purcell said.
Purcell also told brokers that their industry already has passed through two stages of domestic consolidation-financial and size for distribution- and that the next stage-international-will increase the industry's reach in unprecedented ways.
"The final game will be played not in Miami, but in New York, London and Tokyo," he said. "The next stage will be driven by institutional customers, who would prefer to deal with providers who can service all of their needs on a worldwide basis. Clients want research, product and liquidity across all geographic markets and all products. Clients are focusing their resources on fewer firms who add the most value."
Estimated technology costs are reaching 10 percent across the securities industry, Purcell said, telling brokers that there are some "big ticket items" they will have to spend money on next year, including year-2000 and Euro readiness and Nasdaq's order-handling rules.
"These challenges can be met, but it's going to take size and capital to do it. So brace yourselves," Purcell alerted brokers. "The big game is about to begin, and they are always the most exciting."
Investors generally gave the securities industry good marks, said James Higgins, COO of Dean Witter Securities and this year's chair of the SIA. About two-thirds of polled investors said they were pleased with their brokerage services and the industry at large, and Higgins attributed the vote of confidence to greater investor knowledge than in the past.
Technology has played a part, he said. About half the investors polled by SIA said they use their computers to obtain investment information, up over 10 percent from last year. On-line trading has remained constant when compared to last year, at about 8 percent of those polled, Higgins said.
IBM chairman Lewis Gerstner, Jr. asked brokers what they were waiting for in providing investors with on-line trading services, noting that discount firms have already made significant inroads into the market. But most wirehouses are still defining their Web business strategies to ensure that the service does not compete with their huge sales forces in recommending investments to clients over the phone.
On the operational and regulatory front, Higgins told brokers that their industry has made strides in establishing an aggressive awareness campaign and testing schedule for year-2000 conversion. The SIA has also been successful at convincing state legislators in New York and Illinois to recognize the Euro as a currency, which Higgins said is critical for futures and derivatives contracts.
"Thanks to this legislation, international traders will not have to look outside our U.S. financial centers in order to do business," he said.
Other operational highlights this year include the Securities and Exchange Commission permitting brokers to store more of their records electronically, and progress toward automated mutual fund portability, which the National Securities Clearing Corp. promises to deliver by next year (See related story on page 6).