Wall Street Letter - Wall Street At Risk From IM Bugs

A nasty worm that targets computers through a popular instant messenger struck 1,000 computers in the U.S. last week, raising concern that instant messaging (IM) is on the verge of becoming a major conduit for spreading harmful viruses in the financial sector, which relies heavily on IM.

"Wall Street is at risk because they are particularly heavy users of these systems," says Art Gilliland, director of product management at IMlogic, a technology firm that provides software to brokerages Merrill Lynch and Bear Sterns. "As soon as one brokerage house gets it, they are all susceptible," says Gilliland.

Gilliland would not say whether the latest virus, dubbed the Funner worm, has affected Wall Street brokerages, but he predicts an increase in similar attacks as hackers realize that IM is an incredibly fast way to spread viruses. He also says the new worm is especially worrisome as it is the first "damaging virus" to target computers through IM.

The Funner worm strikes when an MSN Instant Messenger user clicks on an infected link, unknowingly causing the worm to download code, redirect the browser to certain Asian Web sites, and send itself to everyone on the user's contact list.

IM has been popular with Wall Street traders for years and the new virus, combined with a warning in July from the FDIC to its 5,300 member banks and financial institutions that IM can expose companies to privacy, security, and legal liability risks, has firms reassessing their IM needs.

Regulators are concerned that IM systems such as those available for free download from Yahoo, Microsoft, and AOL, do not allow for messages to be archived, a violation of compliance laws. Under Securities and Exchange Commission rule 17a-4, instant messages from sell-side brokers and traders must be archived and retrievable and cannot be edited or changed. A Wachovia spokeswoman says the firm does not us IM because of regulatory issues. Goldman Sachs also says that it doesn't use IM. A spokeswoman for Merrill Lynch says that the brokerage did not get hit by the Funner worm and HSBC says it does not comment on internal policy. Other firms did not return calls by press time.

Mark Coriaty, director of business development at technology company IMTRADER, says that brokerage firms don't permit IM in their business operations, but do allow it on trading desks. "Buy-side firms want to use AOL to get color on the market," he says. "They want to know what's happening on the floor." Coriaty estimates that 80-90% of equities trading desks use AOL.