Two Faces
of
Financial Services Standardization
Richard Mark Soley, Ph.D.
Chairman and CEO
Object Management Group, Inc.
20 October 2011
Page: 1
©2011 Object Management Group
A Story from My Hometown
• Great Baltimore Fire of 1904
• Response from Philadelphia, Washington, New York, Virginia,
Atlantic City… hundreds of firefighters
• Burned for two days, 60 hectares
• Why?
Elemental Links
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Standards Are Important
• Sometimes they have life-or-death
consequences
• Successful standards start, maintain
and build ecosystems & businesses
• Standards are product differentiators:
– Marks of quality
– Expertise (certification, validation)
– Interoperability, Portability & Reuse
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Integration is Hard
Executive decisions, mergers & acquisitions have a way of surprising us…
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One Standard?
• No…but the cost of adaptation must be low.
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OMG’s Mission
• Develop an architecture, using appropriate
technology, for modeling & distributed application
integration, guaranteeing:
– reusability of components
– interoperability & portability
– basis in commercially available software
• Specifications freely available
• Implementations exist
• Member-controlled not-for-profit
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Who Are OMG?
Adaptive
FICO
Microsoft
OIS
Atego
Firestar Software
MITRE
Oracle
Boeing
Fujitsu
PrismTech
CA Technologies
HCL
Model Driven
Solutions
Citigroup
Hewlett Packard
Cognizant
Hitachi
CSC
HSBC
EADS
IBM
Eclipse Foundation
Lockheed Martin
EDS
Mayo Clinic
National Archives
NEC
NIST
No Magic
NTT DoCoMo
Northrop Grumman
OASIS
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SAP
SWIFT
TCS
THALES
Unisys
Wells Fargo
W3C
You Can’t Do it Alone
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OMG & Modeling
• Best known for key standards in modeling
languages and middleware:
–
–
–
–
–
–
–
–
–
UML (broad software & systems)
SysML (systems engineering)
SoaML (service-oriented architectures)
BPMN (business processes)
CWM (data warehouses)
MOF (modeling languages)
UPDM (enterprise architectures)
CORBA (distributed object-oriented middleware)
DDS (real-time publish & subscribe middleware)
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OMG’s Focus
• Three key “infrastructure” standards foci:
– Modeling
– Middleware
– Real-time & other specialized systems
• More than 20 “vertical market” foci:
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–
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Healthcare
Financial services
Robotics
Etc.
• Focused working groups
– Business Architecture
– Cloud Computing
• All in a common context
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21st Century Enterprise: Globalization
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21st Century Enterprise: Connectedness
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21st Century Enterprise: Digital Markets & Value Chains
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21st Century Enterprise: Continuous Innovation
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21st Century Enterprise: Change Creation & Adaptation
"If you don't like change, you're going to like irrelevance even less.”
- General Eric Shinseki, Chief of Staff, US Army.
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21st Century Enterprise
=
Complexity
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The Enterprise Architecture Mission
Create an Environment for:
That Embraces:
And Manages:
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An Enterprise Blueprint
This is not an architecture
This is not a house
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The Environment
Business IT Integration
Portfolio Planning & Management
Business Agility Platform
Enforcement to Compliance
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Enterprise Architecture in 2010
• Technology Focused
• Business & Technology Focus
• Governance & Control Origins
• Business Advancement
• Portfolio Productivity
• True Enterprise Level Function
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Traditional Business and IT Collaboration
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Service-Oriented World Business and IT Collaboration
STANDARDS
EA 2010
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Beware the Alignment Trap
"A lack of alignment can doom IT either to irrelevance
or to failure”.
“…a narrow focus on alignment reflects a fundamental
misconception about the nature of IT.
Underperforming capabilities are often rooted not just
in misalignment but in the complexity of systems,
applications and other infrastructure.”
“Aligning a poorly performing IT organization to the
right business objectives still won’t get the
objectives accomplished”.
- Avoiding the Alignment Trap in IT, MIT Sloan Review, Fall 2007
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Enterprise Architects Need Business Smarts
“One of my VPs said, I’m never bringing [architect] to
another meeting because he opens his mouth and all
that ever comes out is SOA, SOA, services-oriented
architecture, and I can’t bring him to my business
clients.
A year later, he is the most articulate business speaker
and has really turned the community where they now
say, we want [architect] at all of our meetings.”
- CIO, Fortune 200 Company
Elemental Links
©2011 Object Management Group - Page: 24
You Are Not Alone
• There are plenty of organizations that are on this path
• There are thousands of people learning to be
enterprise architects and spanning the
business/technology gap
• From the standards perspective, modeling is an
important way to understand systems
– That’s not a particularly new idea, see bridge-building
– Don’t forget where the word “architecture” came from
• There are organizations that bring together people
– Business process excellence: service architecture meets the
business
– Object Management Group: business architects & modeling
standards
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Financial Services Standards Proliferation
• The Financial Services world already features
dozens of standards
– In inter-bank payments & trading alone, hundreds of
standards, near-standards, in-house standards and one-off
solutions: ISO 20022, ISO 15022, MT, FIX, FpML, IFX, etc.
– Financial services richly displays the “N+1 Problem” – one
standard to rule them all
Elemental Links
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Two Standards in Financial Services
• Let’s focus on two specific OMG standards
• Consortium for IT Software Quality
– Increasing the measured quality of delivered software
• OMG’s Financial Services Task Force: Financial
Industry Business Ontology
– Increasing the interoperability of financial services
messaging and reporting without increasing complexity
Elemental Links
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Software Quality: The Problem
Regardless of methodology & approach, the biggest
problem in IT today is inconsistent and unreliable
software quality
Cloud computing and SOA make the problem 10 times
worse: you must rely on software you don’t own, you
don’t see, you don’t control, and you can’t fix
CMMI solves the process problem, but
doesn’t address the product problem.
Elemental Links
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The Software Quality Dilemma
National Research Council
Software for Dependable Systems
“As higher levels of assurance are
demanded…testing cannot deliver
the level of confidence required at
a reasonable cost.”
“The cost of preventing all failures
will usually be prohibitively
expensive, so a dependable system
will not offer uniform levels of
confidence across all functions.”
“The correctness of the code
is rarely the weakest link.”
Elemental Links
Jackson, D. (2009). Communications of the ACM, 52 (4)
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Software Engineering’s 4th Wave
What:
4
Architecture, Quality characteristics, Reuse
When: 2002
Why:
Product
What:
3
Ensure software is constructed to standards
that meet the lifetime demands placed on it
CMM/CMMI, ITIL, PMBOK, Agile
When: 1990-2002
Why:
Process
2
What:
Design methods, CASE tools
When:
1980-1990
Why:
Give developers better tools and aids for constructing
software systems
Methods
What:
1
Provide a more disciplined environment for
professional work incorporating best practices
3rd & 4th generation languages, structured programming
When: 1965-1980
Why:
Languages
Give developers greater power for expressing their
programs
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Why CISQ?
• Industry needs software quality measures:
– Visibility into business critical applications
– Control of outsourced work
– Benchmarks
• Current limitations:
– Manual, expensiveinfrequent use
– Subjectivenot repeatable or comparable
– Inconsistent definitionsburdens usage
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What Is CISQ?
Partnership
CISQ
IT Executives
IT organizations,
Outsourcers,
Government,
Experts
Define industry issues
Drive standards adoption
Technical
experts
Application quality standard
Other standards, methods
Technical certification
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CISQ Members
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Initial CISQ Objectives
1
Raise international awareness of the critical
challenge of IT software quality
2
Develop standard, automatable measures and
anti-patterns for evaluating IT software quality
3
Promote global acceptance of the standard in
acquiring IT software and services
4
Develop an infrastructure of authorized
assessors and products using the standard
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Integrating Existing Standards
Technical Work Groups
Knowledge Discovery Meta-model
Structured Metrics Meta-model
Function
Points
Defined
Measures
Maintainability
CISQ
Exec
Forum
Reliability &
Performance
OMG
ISO
25000
14143
27000
ISO
Best
Practices 15939
Security
Methods for
Metrics Use
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Weaknesses
& Violations
ISO
17799
CVSS
Pattern Metamodel; KDM
Another Example: FIBO
• Financial Industry Business Ontology
– Industry initiative to define financial industry terms,
definitions and synonyms using semantic web principals
and widely-adopted OMG modeling standards
– A joint effort of the OMG and the Enterprise Data
Management Council (EDM-C)
– Driven by immediate requirements to capture financial
surveillance (reporting) data (e.g., Dodd-Frank laws in the
United States and similar post-2008 rules worldwide)
– Relentlessly focused on not reinventing but integrating
existing standards (avoid the “N+1 Problem”)
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©2011 Object Management Group - Page: 36
Financial Industry Business Ontology
ISO 20022
Financial
Industry
SME Reviews
FpML
Graphical Displays
FIBO
Business
Entities
Securities
Industry
Standards
Input
Representations
Derivatives
Loans
Corporate
Actions
Built
in
Term, Definition, Synonym
XBRL
OMG
UML
Tool
Generate
(via ODM)
RDF/OWL
Semantic Web Ontology
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Initial Mission & Goals
•
Mission Statement: Demonstrate to the regulatory community and the
financial services industry how:
– semantic technology and the Financial Industry Business Ontology (FIBO)
model can be effectively utilized to fulfill:
•
•
•
•
regulatory governance
data standardization
risk management
data analytics requirements
– specified by the Dodd-Frank legislation
– using currently available data sources and messaging protocols
•
•
Intent: To encourage open discussion and sharing of ideas among
regulatory and financial industry stakeholders about the value and
applicability of semantic solutions to effectively realize transparency,
risk mitigation and systemic oversight objectives
Members include 89 major financial institutions worldwide (BOA,
Barclays, Citigroup, Deutsche, Fannie Mae, Federal Reserve Bank NY,
HSBC, Goldman Sachs, JP Morgan Chase, Morgan Stanley, RBC, RBS,
UBS, Wells Fargo, etc.
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Initial Drivers & Strategy
1) Define Uniform and Expressive Financial Data Standards
Ability to enable standardized terminology and uniform meaning of financial data for
interoperability across messaging protocols and data sources for data rollups and
aggregations
2) Classify Financial Instruments into Asset Classes*
Ability to classify financial instruments into asset classes and taxonomies based upon the
characteristics and attributes of the instrument itself, rather than relying on descriptive
codes
3) Electronically Express Contractual Provisions**
Ability to encode concepts in machine readable form that describe key provisions
specified in contracts in order to identify levels of risk and exposures
4) Link Disparate Information for Risk Analysis *
Ability to link disparate information based upon explicit or implied relationships for risk
analysis and reporting, e.g. legal entity ownership hierarchies for counter-party risk
assessment
5) Meet Regulatory Requirements, Control IT Costs, Incrementally Deploy
Ability to define data standards, store and access data, flexibly refactor data schemas
and change assumptions without risk of incurring high IT costs and delays, evolve
incrementally
Elemental Links
*Swap Data Recordkeeping and Reporting Requirements, CFTC, Dec 8, 2010
*Report on OTC Derivatives Data Reporting and Aggregation Requirements, the International Organization of
Securities Commissioners (IOSCO), August 2011
**Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives, SEC/CFTC, April 2011
©2011 Object Management Group - Page: 39
Meeting Swap Regulatory Requirements
1) Monitor gross and net counterparty exposures for:
Notional volumes per contract
Current values per swap based on valuation criteria dependent upon market
conditions and/or lifecycle events
daily margin
daily mark-to-market
Exposures before collateral
Exposures net of collateral
2) Monitor across full counterparty breakdowns
Identify counterparty risk concentrations for individual risk categories and
overall market
Identify all swap positions within the same ownership group
3) Identify products in a categorical way
Aggregate and report swap transactions at various taxonomy levels of asset
classes
Establish position limits that spans across futures, options, and swap
markets
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*Swap Data Recordkeeping and Reporting Requirements, CFTC, Dec 8, 2010
©2011 Object Management Group - Page: 40
Initial Drafts & Proof of Concept
1) Provide Standard Financial Data Terminology using Semantics
Provide standardized and unambiguous terminology that can electronically describe the
content of an OTC Swap (and related financial terms) using the FIBO conceptual model and
ontology.
2) Provide Semantic Mapping between FpML and FIBO
Provide mapping between messaging protocols e.g. FpML and common domain models e.g.
FIBO to enable interoperability and to avoid imposing changes and alterations to existing
messaging protocols
3) Semantically Classify Swaps into Asset Classes
Classify swap instruments into asset classes based upon rules that evaluate the attributes
and structure of the actual swap data, rather than relying on descriptive codes.
4) Demonstrate Advanced Semantic Query Capabilities
Provide query capabilities that report legal entity hierarchies, levels of asset class taxonomies,
exposures of risk across ownership groups and asset classes (phase 2), as well as extract
data to be used for risk analytics
5) Semantically Define Contractual Provisions to Infer Counterparty Risk
Categories
Demonstrate how provisions of master agreements (e.g. calculations of net exposures, timing
of transfers of collateral, forms of eligible collateral etc.), can be electronically realized to infer
levels of counterparty financial risk (phase2).
Elemental Links
©2011 Object Management Group - Page: 41
That’s Just the Beginning
• In financial services alone, OMG is also defining
– Property & Casualty insurance models
– XBRL abstraction mechanisms for corporate reporting (with XBRL
International)
– Business event-based costing models
• Other standards groups at OMG focus on
– Healthcare: defining healthcare systems interoperability standards
(with HL7)
– Automotive systems assurance
– Smart energy grids
– Military & commercial communications (software radio)
– Space systems interoperability
– Over a dozen other market areas
• End-user focused groups help make transitions
– Cloud computing (fastest growing group at OMG)
– Business process excellence (business architecture & planning)
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Contacts
OMG: http://www.omg.org/
Financial Services Standards: http://finance.omg.org/
Software Quality Standards: http://it-cisq.org/
Cloud Computing: http://www.cloudstandardscustomercouncil.org/
Business Excellence: http://www.business-ecology.org/
Richard Soley: soley@omg.org
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©2011 Object Management Group