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. âWith the number of applications dependent on high-speed data climbing and the technology required to support these applications growing increasingly sophisticated,â writes Johnson, âfirms 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.â 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, âbut few do.â
âFirms 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,â adds Larry Tabb, CEO and founder of TABB Group. âBeing fast for the sake of being fast will absolutely not fly in todayâs 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, youâll simply be playing a catch-up game you will not win.â