Where Does Wall Street Go From Here?

I recently got to speak with Rob Passarella who was working on the postponed 2009 Money:Tech Conference.

Rob has some big ideas that I will be sharing over two posts. We both agreed that this year more than any in recent memory is truly the time for the financial and technology communities to come together to let innovation lead us forward.

Our discussion started with Rob pointing out an often overlooked fact: In pre-dotcom days finance was the field that often employed the biggest innovators, computer geeks and hackers. Top talent from MIT, CalTech and IBM would often get swooped up by firms like Morgan Stanley, JP Morgan and Bear. In fact Google’s CIO, Ben Fried and founder of Del.icio.us Joshua Schrater are great examples of technology talent who emerged from the ranks of investment banks. A connection between finance and technology has always existed, even if it has not produced a tremendous amount of public startup activity in recent years.

According to Rob, a monumental ruling forever impacting the role of information advantage within finance was Elliot Spitzer’s ‘Global Settlement’ in 2003. The issue was that investment firms were asserting inappropriate influence over their research analysts as tied into investment bankers lucrative fees. As a result, firms literally had to insulate their banking and analysis departments from each other both physically and with Chinese walls (Wikipedia). It was about this same time that new publishing tools: blogs, rss and early social media began to emerge. These publishing tools, coupled with new distribution outlets led to the start of a massive shift in power (and influence) among outcast financial researchers and analysts. Technology now empowered analysts to break away from traditional institutions and strike out on their own – all while maintaining the same levels of credibility among their peers that they enjoyed while under the corporate umbrella.

However, not only did the ruling and technology shift empower already established individuals, but it also gave rise to a new wave of individuals who could build credibility and a public brand on their own. Examples include publicly blogging their trades on Covestor, interacting with a network of finance geeks using applications like StockTwits and the emergence of blogs as media outlets. An amazing example is Barry Ritholtz’s, The Big Picture, a blog covering macro perspectives on the capital markets and which is frequently quoted in leading publications such as the New York Times and FT. Likewise for David Malpass of Gildertech.com. That an individual’s voice could compete with traditional corporate media on such lofty topics was unthinkable only a few years ago. Finally, the new channels also allowed Wall Street analysis to finally step pass the ‘herd mentality’ so prevalent in the glory days. Individuals could freely promote their owncontrarian or simply far-out perspectives opening up massive new opportunities for insight and strategy.

Technology has a rich history within the halls of finance, but we are only just at the brink for the next wave of innovation…

In part two of this interview I’ll explore which areas Rob views as having the most opportunity for innovation in 2009.

Also, if you were a presenter at Money:Tech and would still like your voice/ideas/materials to be shared, please ping me and I’d be more than happy to open my blog up to continue this discussion

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Tagged as: Barry Ritholtz, del.icio.us, financial crisis, investment bank, money:tech, Morgan Stanley, o'reilly, Rob Passarella, stocktwits, wall street