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For Front Office, More of the Same Means More $$$$
January 1, 2007
Front-office technology spending is in something of a steady state-of growth-as system-integration and electronic-trading requirements push both buy- and sell-side firms to increase processing speeds, system capacity and productivity and improve the level of services they deliver to clients.
Electronification of trading and the transformative influences of hedge funds and alternative investment strategies ranked first and second on TowerGroup analyst Dushyant Shahrawat's list of the top ten brokerage industry business drivers for 2007. But there's nothing new about these well-established trends, and they exist within a decisionmaking framework that isn't changing much year to year. Shahrawat, research area director of the Needham, Mass. firm, listed the overriding technology priorities as "aligning information technology with new growth opportunities, containing costs, bolstering electronic trading efforts and moving toward service-oriented architecture."
Yet by definition, the environment is anything but static, and that augurs well for technology suppliers as financial institutions spend and invest more on software, hardware and related services.
"The key thing for 2007 will be front-office productivity," said Greg Kenepp, president of New York-based IPC Command Systems, a leading provider of mission-critical communications to trading rooms and other industries. "We see global decisions being made and a lot of emphasis on productivity. There will be a lot of money being spent at the desktop. There has been a lot of investment in technology and ways for people to communicate and interact. The focus going forward will be about integrating those technologies to create a really productive and efficient environment for that front-office end user."
Where productivity or other bottom-line benefits are perceived, budgets are available. Boston-based research firm Celent says that the entire, global financial services industry boosted IT spending 8 percent in 2006, to $317.7 billion. It expects that growth rate to taper down to around 5 percent over the next two years. The securities and investments sector, however, boosted its spending 13.2 percent in 2006, to $70.1 billion. Some 49 percent of that is concentrated in North America, and 85 percent of that regional sum is spent by the sell side, a figure that Celent estimates will hover between $29 billion and $30 billion through 2008.
"The growth in new investments from 2004 until today has mainly to do with new project initiatives such as algorithmic trading and data consolidation," Celent said in the North America securities industry section of its November report on IT spending trends. "However, going forward, Celent expects that the growth will stagnate for some time. As firms continue to struggle with multiple applications, IT infrastructure maintenance remains the highest cost."
TowerGroup's Shahrawat sees brokerage firms plowing some of their robust 2006 profits into technology projects, as institutional brokerages "consider a somewhat longer-term horizon in their business and IT decisionmaking."
IPC, whose innovations include introducing voice-over-Internet protocol (VoIP) technology to trading-room turrets as early as 2001, in surveys of the trading-desktop functions at more than 50 firms over the last 12 to 18 months found that a premium is being placed on efficiency. "Traders are in a high-pressure environment, forced to make critical decisions with limited information in very short periods of time," noted Kenepp. "What they need are tools that will make them efficient. It's really about taking the technologies and the vehicles they have and integrating them together to create an efficient environment."
Peter Skoglund, director of product development and systems engineering at BT Trading Systems, an IPC rival in the turret business and a unit of London-based telecom giant BT Group, said customer priorities are more and more focused on trader effectiveness. He expects clients to spend more money on technology integration and VoIP.