As the dust settles on the most severe global recession in decades, technologists are cautiously optimistic for 2010 with capital markets IT spending expected to inch back up by 6 percent, making up for the 5 percent in spending lost in the financial rubble last year, according to an exclusive survey of financial services technology executives.
Globally, Aite Group expects capital markets firms to spend almost $42 billion on technology -- up from an expected $39.7 billion in 2009 and $41.8 billion in 2008. Aite Group conducted the survey in the fourth quarter of 2009; Wall Street & Technology helped Aite gather responses from financial services technology executives.
But it is not simply a case of budgets returning to 2008 levels, as very few companies actually fall within the 6 percent average spending increase, cautions Adam Honore, research director at Aite Group and author of the report. Instead, some companies may see their tech budget coffers increase more extensively while others will still tighten their belts in 2010, he tells WS&T.
Some Expect a 20 Percent Spending Increase
Overall, 28 percent of the 30 CIO-level capital markets executives who participated in the survey indicated that they would receive no budget increase in 2010, while 24 percent said they would see a 10 percent rise. Beyond those groups, responses varied widely. Some firms indicated a 10 percent drop while others expect technology budgets to rise by more than 20 percent. Those reporting the highest budget increases typically are electronic trading firms (proprietary, hedge fund or sell-side firms) pushing to maintain their positions in the low-latency arms race.
"My budget is flat to modestly up. But it's a belt-tightening air in the room, not one of free spending," says Steve Rapp, managing director and CTO, AGI Management Partners. "In 2010 I wouldn't still use the term 'cost-cutting.' I would use the term 'prudent business practices,' and the gain of economic efficiencies that we would have pursued whether or not the economic conditions of 2008-2009 had occurred."
Rapp reports that one of his IT priorities this year is the implementation of a new trading platform and a new accounting system as part of an ongoing project to consolidate the applications and infrastructure of three affiliate companies on a single platform. The project is expected to deliver cost savings ranging in the millions of dollars over several years.
Nicholas Voutsakis, chief technology officer at Glenmede, also is focusing on strategic initiatives. He says one of Glenmede's priorities for this year is continued investment in its wealth management platform, which encompasses client reporting, trade order management and post-trade compliance, and integrates fixed income, analytics and reporting on a single platform.
"In the long-term, while creating integrated platforms requires an investment, it does enhance efficiency," says Voutsakis. "We are being prudent with IT spending and are trying to spend on more strategic initiatives. It goes back to the strategy we've laid out -- to really evolve many independent systems that talk to each other to larger platforms with more inherent integration between applications."
What a Difference a Year Makes
Ultimately, one year can lead to a huge difference in IT strategy, and it has for most firms, according to Aite. Last year, cost reduction dominated the agenda at most capital markets technology organizations, followed by risk management. Fast forward one year, and the overall top business objective in order of priority related to IT spending has become business agility (which ranked last in the 2009 survey), followed closely by operational efficiency, according to he Aite survey. Cost reduction slid from first place to sixth -- although several firms still listed it as their top objective, Honore noted in the report.
Most CIOs indicated that execution management systems are their top IT priority, followed by risk management systems, global trading settlement back-office systems, client reporting, and pre- and post-trade analytics, according to Honore. Most CIOs also plan to upgrade infrastructure, taking advantage of emerging technologies and maturing technologies around multicore processing and virtualization, he says. More than 40 percent of CIOs plan to upgrade single-core servers to multicore machines in 2010, the report found.