The peer-to-peer (P2P) computing model is poised to penetrate the investment management industry - providing a simplified and automated workflow process for linking counterparties directly over the Internet, according to a study conducted by TowerGroup.
The report, "Leveraging the Napster Model: Peer-to-Peer (P2P) Computing Penetrates the Buy Side", highlights the potential of two new P2P systems to reshape the investment management community: Liquidnet and WorldStreet. Liquidnet aims to build the largest liquidity pool exclusively for buy-side traders, thereby redefining buy-side trader workflow and potentially the market for block orders.
WorldStreet focuses on building peer network solutions that will allow financial institutions to share information on a targeted basis. Combining a new concept called "package routing" with traditional customer relationship management (CRM) capabilities, WorldStreet intends to become the "control panel" for the buy side by enabling users to access peer network capabilities within their existing workflow applications.
The study estimates that the growth of peer-to-peer may have significant impact on business-to-business exchanges. Employing P2P would simplify the workflow process and provide a more open, community-owned model, enabling the broker to reconnect directly with the investment manager without going through an intermediary, currently represented by the B2B exchanges.
However, TowerGroup warns that security will be a top priority for firms deploying peer-to-peer technology. P2P allows for more open communication between any two previously unconnected desktop machines - which raises red flags for any financial application.
Despite these concerns, Rob Hegarty, director of TowerGroup's investment management practice and author of the research, remains optimistic: "TowerGroup expects widespread adoption of P2P technologies in all facets of financial services, particularly in investment research and electronic marketplaces. As P2P technology becomes more prevalent and accepted, it could go so far as to usurp the plethora of B2B exchanges."