Keep on moving

The trading world will be in a state of flux for some time to come. IT is transforming the business, and we are some way from discovering just how far. Already the ‘engine rooms’ of organisations involved in the movement of investment instruments are under pressure and the increasingly common use of the phrase ‘keeping the lights on’ among technology professionals is indicative of this pressure.

Author William Gibson once said: “The future is already here. It’s just not very evenly distributed.” Looking at the range of systems that underpin the global market – from physical paper processing to fully automated straight-through processing, from open outcry trading to the algorithms that allow millions of trades to be run in mimicry of human trading behaviour – one can believe this to be true.

But whether your back office is held together by paper clips or middleware, information transfer is rocketing. Research organisation TowerGroup predicts that within the securities industry the annual spend on commercially sold data stream processing systems, valued at $67m in 2006, will reach $600m by 2010 (see box below). The hardware industry is pushing the barrier on processing power, speed and data transfer speed while the software industry has been re-engineering its applications to meet the intense volumes of data that can be expected to flood through the arteries of the investment community.

Trade-offs necessary

Not everyone can keep up with the pace. Trade-offs must be made between security and convenience. Since milliseconds can mean the difference between taking and missing an opportunity, a failure to account for the distance between your black box trading system and an exchange could lose you money. When your data centre contains no further room or when the air conditioning is at its limit to prevent overheating, it may be too late to start investigating the difference that the latest chips can make to your business. The winners in this game are in a constant state of development and improvement.

Technology is not only changing the speed of business, it is knocking down walls. Global banking is a reality for many people, thanks to the networks that span the world, challenging the limits of geography. To cope with this cross-border expansion, regulators are devising rules and guidelines to try to balance the expansion with governance. As regulation drives up the cost of doing business, the financial services industry must drive down its costs through automation if it wishes to increase profitability.

Coping with this state of flux takes strong leadership. The chief information officer’s role is to perceive the opportunities and threats for what they are. Understanding the possibilities they offer is important but making the possible real is down to technological strength. The IT market is not yet mature, and so the securities business must grow up alongside it. The future of trading is here.

SECURITIES INDUSTRY SPENDING ON THIRD-PARTY DATA STREAM PROCESSING SOLUTIONS (2006P-2010P)

• The seemingly explosive growth in spending on data stream processing applications reflects their current immaturity in the market.
• Growth is compounded by institutional adoption and CPU pricing that will drive higher revenue per client in the coming years.
• Growth is also compounded by software and service providers that embed functionality to meet business needs and accelerate applications.
• Current and future market spending totals exclude time series database, in-memory processing and proprietary solutions.
• It remains to be seen how much functionality will be stand-alone, best of breed in 2010 and how much will be embedded in middleware and traditional database offerings.
• By 2010 different vendors may be operating in the market as firms succumb to acquisition and business failure.

^{Note: Spending excludes time series database functionality and in-memory databaseSource: TowerGroup}