Charles Schwab's IT Mission

As economic activity picks up in 2004, Geoffrey Penney, the chief information officer of Charles Schwab Corp., is focusing on technology to grow the brokerage firm's new advice offering, Personal Choice, while enhancing the quality of execution for institutions through the Schwab Liquidity Network.

Launched in February, the Personal Choice program offers individual investors a range of investing services with varying degrees of advice and pricing options. To support the launch, Penney's IT organization spent months building technology that would "assist our investment consultants in talking to clients and in enrolling them in the appropriate offer - the offer the client chooses," says Penney, who is also a Schwab executive vice president and a member of the San Francisco-based brokerage's executive committee.

Penney and his team also had to develop a system to deliver the services - from financial statements to advice - that are part of each client's selection. And, he says, the system has to bill clients appropriately. "There was a lot of blocking and tackling technology work ... [in] building an infrastructure platform for that offer," says Schwab's CIO, who has held the position since 2001.

Since advice is the centerpiece of Schwab's retail-investor growth strategy, the firm is also rolling out a new forecasting tool, called Rebalancing Wizard, to help investment consultants and clients understand their portfolios better. The rebalancing tool is written in J2EE and WebSphere and runs on Linux-based Intel machines. "You feed in the client's portfolio and the client's asset-allocation goals, and it goes off and - tax efficiently and commission efficiently - figures out what to recommend and what trades to make," explains Penney.

On the institutional side of its business, Schwab is developing the Schwab Liquidity Network as part of Schwab SoundView Capital Markets (SSCM), based in Jersey City, N.J. [Editor's Note: SSCM was formed in January after Schwab acquired SoundView Capital Markets.] The Liquidity Network is a trading engine that matches order flow from Schwab's retail clients and independent advisers - which manage over $300 billion in assets - with order flow from institutional clients. By pulling all that order flow together, the Liquidity Network matches up to 20,000 shares per order and executes up to 100 million shares a day, according to Penney. "This is a very substantial technology capability that we have really built over the last couple of years," he says.Continuing to roll out products around that platform, SSCM introduced in mid-April the Passive Indication Network, a continuous matching network for institutional investors that allows them to enter buy and sell prices for stocks and remain anonymous as their passive indications are automatically matched against retail and institutional order flow. "They can see what executes and what doesn't," explains Penney, without incurring market impact.

Of course, if Schwab can't provide secure transactions, none of its growth initiatives will matter. With the number of virus attacks increasing and the amount of spam exploding, Penney says security has become an important concern. According to the CIO, Schwab is working with a number of small companies to implement security solutions.

And, though the economy is in a growth mode, Penney is always looking for cost savings. Last July, Schwab moved its Schwab.com Web servers from IBM P series machines running AIX to Intel/Linux machines. "Commodity hardware kind of wins out," says Penney, who says he will continue to move existing Unix applications onto cheaper Intel boxes running Linux or Windows. "I do have a belief in saving money. So any time I can see a way to get off proprietary hardware and move to Intel-compatible hardware, I'm interested, and that's what we've been doing," he says.