Conventional wisdom says that IT can help an enterprise achieve three things: save money, make money or change operational risk.

Virtually every firm is realizing the cost savings associated with a transition to VoIP technologies and platforms. The big questions are based on parts two and three: how it can help make money while reducing operational risk. In 2007 financial trading firms will continue to transform their TDM voice and data networks to IP and an avalanche of technology buying will follow.

Out With the Old

Trading floor technologists in the trenches face consuming challenges in this migration that include:

• Minimizing disruption to production trading operations
• Choosing new platforms that provide measurable benefits
• Integration with existing systems and networks
• Meeting compliance, security and performance requirements

The choice between the solutions from "safe and known" vs. those innovations from the "new and promising" vendor community is perhaps the most difficult of all.

As we know, no points are awarded for innovative products that do not meet the rigors of life on the trading floor. But, real innovation can establish competitive advantage. We need only read case studies of how Apple turned the music industry business model on its head to understand how innovation creates value.

The common denominator in technology is that industry-shifting change usually comes from outsiders. They are the only ones with enough at stake to take on this risk. Let's take a look at three areas that reside at the heart of any trading floor infrastructure and from what direction advances might come: trading telephony, voice recording and ringdown circuits.

Trading Telephony

The world of voice trading is changing. Stock exchanges are eliminating "floor" staff in favor of all-electronic exchanges while the emerging dominance of the buy-side is steadily changing the power structure in the markets.

Voice, while still crucial, is only part of the mix of any transaction. Add to this the need to support distributed staff (branches), business continuity (DR sites or home-based trading) and the directive to lower costs, and it is clear that traditional trading telephony platforms need to change.

How, you ask? First, they must become more scalable to meet rising demand from smaller, geographically distributed trading groups. Next, they must embrace line networking, remote trading and the multimedia potential of SIP applications. They must cost-effectively address business continuity and disaster recovery requirements. And finally, all this must be available at reasonable cost with more choice for customers.

And what about global trading operations? Are traditional turrets required for all traders? One IT executive of a major securities firm concluded that 50% of their 6,000 traders did not have any need for a traditional trading turret.

A consensus is building that next-generation trading "appliances" should be multimedia devices that provide secure voice, data and video anytime, anywhere over a broadband connection.

Voice Recording

Voice recording is another area poised for dramatic change. Secure, open architecture solutions from exciting companies are being widely evaluated and adoption is flourishing.

These solutions enable customers to buy voice recording as an application; this is eliminating the choke hold of the proprietary model. Installing it on their own network infrastructure, customers can use their servers, storage devices and IT assets and policies to realize efficiencies and ensure security and compliance while reducing costs and increasing productivity.

Ringdown Circuits

Leading the way for all these changes is the steady move of voice/data network connectivity from time division multiplexing (TDM) to Internet Protocol Multi Protocol Label Switching (MPLS) or Ethernet-based connections. A ringdown circuit can now appear in multiple locations for the same or less cost than a point-to-point TDM DS0. MPLS and Ethernet have all but eliminated the bandwidth and media restraints of the TDM world. So customers are beginning the long road to next-generation networks that deliver new applications and capabilities better, faster, simpler and cheaper.

The Takeaway

What this boils down to is a sea change for the financial trading community. This is far beyond what digital did to analog - which was largely about cost benefits. The IP age in the first instance is, for the most part, about cost savings and efficiency. Everybody will participate at this level of the game.

In the long-run the smart money knows that the stakes are higher than mere cost savings. The real winners in this revolution will be those that deploy innovations that deliver their traders competitive advantage, increase operating leverage, separate them from competitors, and reduce operational risk in the process.

So view the migration to IP as an arms race. Choose your weapons carefully and make sure they take into account future requirements of the game more so than those of the past.

Chris Corridon is VP Marketing - Wesley Clover Solutions, 646-419-4241; email: chris_corridon@wesleycloversolutions.com; web: www.wesleycloversolutions.com.