CST on Fire

For Geoff Chapman, CIO at brokerage firm Collins Stewart Tullett (CST), this year has been one of tough decisions. Soon after deciding to outsource the firm's post-merger technology integration process to a London consultancy, he was called at home on a public holiday and told of a fire at the firm's corporate headquarters.

Less than a year before Chapman got the call about the fire, CST acquired rival brokerage Prebon. Company officials realized that the two interdealer brokers were in complementary businesses�Tullett was strong in fixed income, and Prebon was a leader in the energy markets. Both companies also had areas of mutual strength in foreign exchange and derivatives. The subsequent merger of CST and Prebon, finalized in October of last year, resulted in a major competitor to interdealer broker Icap.

As with any merger, however, the integration process has hit bumps in the road. The departure of several senior executives from Prebon was reported after the merger: From the technology side, John Helme, Prebon's CTO, and Patrick McGrath, head of technology strategy for Prebon Technology Group (PTG), both left the company.

CST then set about integrating its technology with Prebon's, and it has now outsourced the final integration process to London consultancy Rule Financial. CST initially considered the deal with Rule a year ago, but detailed discussions began this past April, according to Rule Financial CEO Marcus Rule, who confirms that the deal was signed in June. The details specify that Rule will support the Prebon systems until they are phased out�and 20 employees have already been transferred from CST to Rule Financial as part of the agreement.

One of the employees to be transferred to Rule is Damian Walton, former head of global integration at CST/Prebon, and head of global development for Prebon before the merger. Prior to CST's acquisition of the firm, Prebon was known for the trading systems that it built internally. According to Walton, the platforms that are being examined for the integration process are order management systems (OMSes), a market data platform, a business-activity-monitoring dashboard, billing systems, cash-flow systems, and clearance systems.

Rule is already working to replace the third-party historical time-series databases used by CST and Prebon with technology originally developed at Prebon. Walton says that neither CST's use of Reuters Telerate's historical time-series database solution nor SunGard's Fame solution were considered suitable. "The Fame solution is very expensive, and it is difficult to export data to other systems," says Walton. He says that for the Telerate solution, it is costly to add new instruments and asset classes.

A spokesperson for CST confirms that by the end of the year, the migration to the new historical time-series database from Rule should be "well advanced." Officials at Reuters decline to comment on Walton's assessments.

SunGard Market Data Services (SMDS), which acquired the historical data and data management software vendor Fame Information Services in early 2004, confirms that CST/Prebon is still an active client. SMDS officials did not respond to offers for further comment.

Walton began development on what is now Rule's own historical time-series database while working at Prebon, and Prebon's intellectual property in IT was transferred to Rule Financial as part of the deal. According to Rule, the consultancy now owns the rights to resell and redevelop the former Prebon technologies.

Rule also has the right to use the former CST employees for non-CST projects. In fact, not all 20 employees are working on the CST/Prebon integration project. "Only six employees are needed to support the Prebon systems," Walton says. This number was expected to drop down to two or three in January 2006, but it could be more, says Rule.

The remaining 14 newcomers to the outsourcer will be working on projects for Rule Financial's other clients, including Deutsche Bank and Standard Bank, says Walton. As part of the deal, fees earned by the former CST employees working on other projects will be credited in part to CST's fees paid to Rule in 2006.

But the outsourcing deal is not the only big change that has hit the London-headquartered broker. On the evening of August 29, a public holiday in the UK, CST's Chapman was called at home with the news of a fire at Cable House on New Broad Street, one of the firm's buildings. The emergency team assembled at the building at around 11 p.m. that night, says the CIO. Though people had been working in the building on the day, the fire broke out after hours and no one was injured, he says.

"After an external power failure, the UPS kicked in as it should have," Chapman says, referring to the uninterruptible power supply. "But a fault in one of the batteries in the UPS led to it catching fire." While the fire department put out the blaze quickly, the power distribution room in the lower ground floor of the building was left out of action�meaning no power was available for the whole building that housed 500 people. According to Chapman, apart from the power room, which was seriously damaged, the rest of the building only suffered smoke damage.

The units in the building included brokers, administrative personnel and Tullett Prebon Information (TPI), the firm's market data distribution arm. "The biggest issue for us was rehousing people and restoring affected systems to full service," says Chapman. The people were transferred to three separate locations: Brokers moved to CST's disaster recovery facility in the Docklands area and to the firm's 15 Bishopsgate location, while the TPI unit moved to another facility that the firm had recently vacated as part of the CST/Prebon integration process. The majority of the administrative staff also moved to the vacant facility.

"The plan we implemented wasn't quite the plan we had on paper," Chapman says. It was adapted to take into account the vacant facility "just because it's physically closer to our other operations," says the CIO. By the morning after the fire, essential staff and their supporting systems were already working from alternative locations. Chapman says that "almost all systems" were up within 48 hours of the fire, and that full customer service for most customers was restored by the following week. "We are now repairing the damage, and will be back in Cable House by the end of the year," he says.

But there are still some loose ends to be tied up. According to one source, the firm's cash equities desk is to be discontinued partly as a result of the fire, but the specific reasons are unclear. While the lease on the vacant facility won't be an issue, Chapman says negotiations are continuing with the firm's insurer. Collateral damage�such as cables potentially affected by heat, and so on�will also have to be checked before Cable House is up and running again.

As for who will supply the components for the new power room, the decision has yet to be made. But as UPS components are largely commoditized, there are no hard feelings toward the previous UPS suppliers for their power room. "They are a reputable manufacturer with many units in the field. We didn't rule them out for tendering for the replacement," Chapman says.