The report found that U.S. securities and investment firms spent $35.4 billion on IT in 2007 (a 3.5% increase over 2006), and that they will spend $36.2 billion on IT in 2008 and $38.2 billion in 2009. The bulk of the spending (81.6%) will be done by sell-side (brokerage) firms.

Buy-side firms will be investing most in electronic and algorithmic trading, the Celent analysts found. "Large asset management firms continue spending to modernize their trading systems (especially DMA, advanced execution management and order routing, etc.)" the report states. "Trading desks must automate to drive down brokerage and processing costs." Portfolio compliance is the second top priority for the buy side -- "best execution requirements and pressures are driving firms to invest heavily in new pre- and post-trade compliance tools," the report notes. Support for nontraditional products is another priority, particularly for large hedge funds (over $1 billion) that want to broaden their product lines. "These firms are becoming more 'institutionalized,' using software solutions that were previously marketed to the largest institutions only, while traditional institutions expand into new products such as 130/30 funds," the report says. Corporate actions automation and other back office initiatives is the fourth priority; the report notes, "STP is no longer about abstract T+0 goals, but a real need to increase operational efficiencies for a range of different asset classes." Which segues to the fifth priority for buy -side IT budgets: derivatives automation. The study finds buy side firms are expanding into new asset classes and seeking new software and services to handle these products and prevent bottlenecks.

The top IT priority for brokerage firms, Celent says, is automated trading and next-generation algorithms. "New attention is being focused on dark liquidity seeking," the report comments. Next is market infrastructure investments on technology platforms and marketplaces such as dark liquidity pools, ECNs and crossing platforms. Third is straight-through initiatives for derivatives, to handle increasing volumes and nonstandard products. Fourth for sell-side firms is enterprise data management, to develop "more holistic approaches to data management including reference data." And the fifth IT purchasing priority for sell-side firms, Celent says, is risk management: "Firms reeling from subprime mess, expanding risk management tools."

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