Investment on High-Speed, Advanced-Trading Infrastructure Value Chain across Asset Classes to Hit $860M in 2007, Rising to $1.3B by 2010, Says TABB Group

NEW YORK, NY - 2 April 2007

In 2006, over half of institutional equities trades in the US were executed through direct market access (DMA), algorithms, programs or crossing networks and with steady growth in every electronic execution channel that percentage will increase to 64% by 2008. According to Jeromee Johnson, senior research analyst at TABB Group, which today released its newest research report, “Trading at Light Speed: Analyzing Low-Latency Infrastructure,” moving forward, components in the high-speed advanced trading infrastructure value chain will only become more critical to trading success, which means “these technologies must get better and faster.”

While the bulk of technology investment has been and continues to be made in the equities sector, the entire industry has been spending steadily for years on advanced trading technology. TABB Group forecasts that total US capital market spending on advanced trading technology is expected to total $860 million this year, reaching $1.3 billion by 2010. Factor in the effects of Regulation NMS, penny option pricing and MiFID, in just the equity and options asset classes alone across the global exchanges, the volume of market data messages will soar from under 4 billion messages per day in 2006 to nearly 130 billion per day by 2010, an increase of nearly 140% CAGR.

As a result, buy- and sell-side trading firms are being forced to change the way they deal with these exploding market data volumes and processing requirements. “With the number of applications dependent on high-speed data climbing and the technology required to support these applications growing increasingly sophisticated,” writes Johnson, “firms are relying more than ever on time-series analytics, complex-event processing and more powerful automated-trading engines, applications requiring a support infrastructure consisting of more servers, greater bandwidth, new messaging capabilities and lower latency networks.” Based on interviews, TABB Group forecasts a 34% increase in demand for servers dedicated to high-performance computing.

As expected, many vendors are vying to capture significant revenues by meeting technology needs of trading firms. Building an enterprise-worthy, ultra-fast trading infrastructure is a daunting task, explains Johnson. Some vendors claim to provide end-to-end solutions, “but few do.”

“Firms need to be strategic, decide where being fast is most critical to them, invest where they have a competitive advantage and play the game on their terms,” adds Larry Tabb, CEO and founder of TABB Group. “Being fast for the sake of being fast will absolutely not fly in today’s low-margin environments because every one of the components that your firm adds to further accelerate or automate trading processes drives complexity. If all you do is try to move fast, you’ll simply be playing a catch-up game you will not win.”

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