A Few Words With . . .The Davidsohn Group's George Davidsohn
June 30, 1997
George Davidsohn's first job on Wall Street was as an IBM punch-card clerk, when he was 14. Today, after more than 40 years in thesecurities industry, Davidsohn is known as "The Man Who Knows theStreet." Davidsohn has helped implement many changes in automationthat have shaped the securities industry. These include the firstcomputerized margin system and a system in which non-segregatedsecurities replace segregated securities to free stock for bank loans.
Securities Industry News reporter Edward Kountz recently talked toDavidsohn, president and CEO of the Davidsohn Group, a technology andback-office systems development firm, about the rapid evolution oftechnology on Wall Street and what the future holds.
Securities Industry News: Why did technology catch on so fast withWall Street?
Davidsohn: One reason was the perception that technology andautomation had a purpose. I remember attending a board meeting at DeanWitter in the mid-1950s with 25 partners and Jack Witter. They weretalking about replacing their current system, which cost $7,000 amonth, with a new IBM computer, which cost $35,000 a month. This was ahuge amount to spend at that time. Jack Witter gave the go-ahead as afuture investment, but to justify the move, they asked me to automatethe margin area and reduce it by 33 clerks. We ultimately created thefirst automated margin area on the Street. We ultimately reduced themanpower requirements by 67 clerks and still had more processing powerthan before.
Not so long ago, firms were automated only to the point where itbecame more efficient to do it manually, which was most of thebusiness. It's the opposite todayoautomation now does most of WallStreet's processing, and that trend isn't going to go away. The firmsthat are around today have been good at assimilating technology tomeet their needs.
Securities Industry News: And the firms that weren't as good?
Davidsohn: There are many reasons firms are consolidated, oracquired, and failure to keep up with the processing efficiency of theStreet is one of them.
Securities Industry News: What role do you see for the Internet asa means of data delivery?
Davidsohn: It's a complicated question. In this industry we'reselling executions, and successful executions have to be done inseconds or less. I don't think anyone knows how efficient the Internetwill be when the market's declining and everyone's rushing to sell. Ifan order for 100 shares takes a little longer to execute, it's not acalamity. But when you're talking large institutional volumes over theInternet, you need instantaneous execution.
Until that problem is settled, I don't see a significant role forthe Internet except in terms of providing static information to themarket.
Securities Industry News: What about straight-through processing?
Davidsohn: The need for current information is more dramatic thanit ever was, and firms are trying to find quicker, more efficient waysof delivering that information. Each firm has to decide how and whenit wants to get to that point, but the progressive firms need to bethere, and most are well on their way.
We're currently planning to have our systems running in a fullySTP environment at the end of 1997. We'll marry our legacy system withsome of the new client-server applications we're developing, and thenext step will be to convert fully to client-server.
Securities Industry News: How did the Davidsohn Group evolve, andwhere is the firm going?