Although boosting trading speed will continue to be high on US equity brokers’ list of priorities in 2010, business demands beyond latency may exceed their trading technology budgets, according to a new study by
research and consulting firm TABB Group.
The study, ‘US Equity Technology 2010: The Sell Side Perspective’, based on interviews with chief information and technology officers at 24 sell-side firms, found that in addition to meeting increased latency reduction requirements, technology heads at brokers are being asked to expand network capacity, make more efficient use of data centre space and increase utilisation of their share of the 93,000 sell-side servers running their US equities businesses. TABB said the average bulge-bracket broker spends nearly $30 million annually on excess computing power.
“Budgets are growing but not as fast as demands from the business as we see data rates continue to soar and latencies continue to drop,” said Kevin McPartland, senior analyst at TABB and author of the study, in a web presentation.
He added that the ever-growing demands for data and network capacity are putting brokers under constant pressure to update their US equities infrastructures, but that the industry needs to find new ways to use available resources.
“The sell-side will continue to invest in their infrastructure, as they need to continue to grow capacity as the market demands of trading US equities grow,” said McPartland. “Market data rates will continue to expand and trading will continue to get faster. However, with budgets tighter, we need to look at better ways to do this rather than just brute force.”
Companies are looking at more efficient ways of expanding their trading technology capabilities. According to TABB, nearly half of the brokers interviewed are now consolidating or migrating data centres.
However, certain types of optimisation, such as server virtualisation – where single servers are used for multiple tasks across an organisation – are still years away for sell-side equities technology, TABB argued. While 80% of bulge-bracket firms are using server virtualisation, it is unlikely to be employed for trading applications because
of the latency it incurs.
In addition, optimisation of usage is not an answer to all the sell-side’s technology challenges. According to the study, many sell-side firms are still fighting to keep up with bandwidth requirements coming from exchanges and market data providers.
“It’s not a matter of more efficient utilisation of bandwidth,” says McPartland, “but simply having enough. In fact, availability of bandwidth stands out as the biggest game changer, allowing new market participants to compete with the incumbents, new trading strategies to be born and information to flow more efficiently than anyone thought possible.”