Financial IT spend to increase as banks and buy-siders grapple with regulation
Banks, asset managers and hedge funds will have to increase their IT budgets in 2013 to take account of weak market growth and a raft of oncoming financial regulation, according to new research by Ovum.
Buy-side firms will need to invest to ensure compliance and to reduce their reliance on brokers, while sell-side firms will increase their IT spend to allow them to offer better services, such as support for multi-asset strategies.
Client servicing will top the buy-side expenditure list, with buy-side firms keen to retain customers and avoid fallout from low investor returns. At the same time, a move towards intra-day reporting will help provide better insight into the performance of particular asset managers.
“The buy-side is finding ways to increase returns by reducing the reliance on a single broker and adopting multi-prime strategies as well as direct market access,” said Rik Turner, senior analyst, financial services technology at Ovum. “With EMIR and MiFID II on the horizon, spending on compliance will remain a high priority.”
On the sell-side, firms are increasingly investing in post-trade operations, according to the Ovum research. Meanwhile, cloud services and microwave connectivity are also becoming a realistic option. Late last year, Colt Technology Services opened a new microwave service between London and Frankfurt that it claimed would give traders speeds 40% faster than the nearest alternative.
“Despite the market instability, the sell-side is still increasing its IT spend,” said Turner. “With an increased reliance on innovative technology to deliver returns for the buy-side, the sell-side is strategically outsourcing previously on-premise IT solutions to reduce costs and remain competitive. Although IT infrastructure investment will grow, the age-old focus on compliance will continue to dominate sell-side IT spend.”
In November last year, Norwegian broker Christiania outsourced its own execution to specialist firm Neonet. The move was intended to allow the firm to focus on its core business area in research, according to the firm’s chief executive. Other firms, such as exchange group Nasdaq OMX, have also turned to outsourcing in recent months. Nasdaq OMX formed an agreement with Amazon Web Services to build a new cloud computing platform.
Earlier this month, Swedish trading system specialist Tbricks released OnDemand, a new managed trading infrastructure that it says will remove the need for trading firms to make any investment in hardware, installation nor running costs. The idea is that Tbricks provides a fully managed trading infrastructure that includes connectivity and direct market access, together with market data, for equities and derivatives exchanges, multilateral trading facilities and brokers.
The technical standards for EMIR – the European Commission’s new rules mandating the central clearing and reporting of OTC derivatives – come into force on 22 March, after which CCPs will have six months to apply for registration. Once that takes place, a 90-day period will follow in which market participants are given notice that they must clear all products covered by the new rules. It is estimated that market participants will be bound by mandatory clearing obligations by Q1 next year. MiFID II is expected to take effect in 2014 and 2015.