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Microsoft Pivots to ServeThe Street via Azure Clouds

Microsoft has succeeded in entrenching itself onto the desktops of Wall Street with its Internet browser, Microsoft Windows and Excel. Meanwhile, key customer relationship and database management powerhouses are left to the devices of Cisco, SunGard, SAS, IBM and others.

Now, however, Microsoft is giving Wall Street another go by providing the buy- and sell-side with the flexible resources to develop proprietary software. Plans are so ambitious it has ramped up the number of employees dedicated to financial services from a mere six in 2002 to 600 today.

While Microsoft has extended Excel's capacity to one million rows of data, PowerPivot, the newest turbo-charged version of Excel, running on the Macrosoft Azure cloud-computing services, can tackle at least 100 million rows of data simultaneously. This opens up limitless possibilities for portfolio managers, traders and product innovators, to speed up their analysis of trading algorithms. This, in turn, is expected to lead to the creation of new investment vehicles

The Big Hand-Off

The Redmond, Wash., firm is priming itself to be integral to the financial world's move toward digitized consolidated technology and business unit workflow.

John Jacobs, chief operations officer at Lime Brokerage, which caters to high-frequency-trading firms, says high-speed traders are especially apt to develop their own risk-management software, and are likely to embrace PowerPivot.

Accenture's Lloyd Altman, senior director, capital markets practice, agrees: "On every single desk, especially those with quantitative analysts doing modeling, Excel is always used."

Altman noted Excel strengths, such as its graphical front end, its built-in tools to perform regression analysis and other analytics as well as its ability to pull in and use third-party calculation tools, such as Fincad, which develops derivatives pricing models.

But at a certain point, he said, Excel is no longer enough. Those traders typically have to migrate their work to more robust platforms, especially when performing data-intensive risk analysis or in search of extreme trading speed.

"Algorithms don't want a human involved," Altman said, adding, "You might want Excel to create the algos, but you don't want to use it to deploy them, since it would just slow you down."

Starting May 12, Microsoft began offering business customers the 2010 version of Microsoft Office including Excel with PowerPivot.

As to exactly how PowerPivot could change the nature of developing trading models, experts noted that in the past, trading prioritizing speed required specially designed software and hardware to send orders to market centers at speeds in which microseconds determine whether a trade results in a profit or loss. But the analysis fueling each order adds to trade latency as well. With 100 million rows of data, Microsoft could score some big points with traders by enabling them to develop more-complex trading and risk models that tap a vast store of data-all in Excel.

"To deal with speed in high-frequency trading, you have to keep all the data in memory for you to even have a chance to do calculations fast enough," said Matt Meinel, vice president of market development at 29West, a high-speed messaging provider acquired by data-integration specialist Informatica in March.

Meinel calls the hundred million rows of data enabled by PowerPivot "key" to supporting advances in high-frequency trading, if not the actual trading itself.

Meinel said he told Microsoft executives, while serving on an industry advisory council for Microsoft Office in 2001 while in a previous role at UBS, that half the world's capital was going through the Excel calculation engine. But he asserted that the product suffered too many failures in difficult calculations.

Financial services firms still tend to rely on platforms comprising hundreds or even thousands of servers to essentially create a giant spreadsheet to aggregate very large quantities of data and analyze it.

"You do all the slicing and dicing on that platform, and then you download it to Excel to view," he said.

Meinel says most traders can write spreadsheet macros, but at a certain point must pass off the model to a programming team.

With PowerPivot, Microsoft is enabling more of that work to be done at the trader's desktop, or the desktop of any user juggling large quantities of data.

Microsoft is also enabling traders and other finance executives to host their applications, such as trading or risk-analysis models, at the software firm's data centers, to boost their capacity and automatically benefit from technology upgrades.

This is what Microsoft's Windows Azure cloud-computing platform offers, said Ben Narey, director of Microsoft's banking and capital markets groups.

New York-headquartered RiskMetrics Group, which analyzes risk for sell-side and buy-side firms, recently adopted Azure to gain database capacity, especially to support large bursts of activity in today's volatile markets.