Following several years of spending on both compliance and competitiveness, 2007 appears to be at least partially dedicated to cleaning up the integration mess.
Aite Group interviewed 13 sell-side institutions and 12 hedge funds to determine where firms would spend IT dollars this year. With an average budget increase of more than 21 percent, many CIOs are committed to improving core infrastructures in conjunction with the exponential growth in trading. While growth remains a top objective, creating operational efficiency has usurped the top spot in business priorities.
Those priorities translate into a renewed emphasis on trade processing. While straight-through processing may cause eyes to roll, CIOs are focused on improving order flow. Settlement, trade processing and systems integration account for the top three systems priorities in 2007.
Popular growth systems such as broker workstations, trade analytics and wealth management tools did not make the top five priorities. However, business intelligence solutions have attracted the attention of senior management. In conjunction with integration efforts, firms expect to see a greater and more accurate reporting infrastructure to leverage those efforts.
Systems objectives on the sell side and buy side appear to be consistent, with hedge funds predominantly focused on trade processing efficiencies as well. With substantially less personnel performing each task, hedge funds have energized spending on core infrastructures on issues such as disaster recovery and network improvements.
While the monetary attention is going toward improving operational efficiency and systems integrations, the back office is not the sole recipient of those dollars. In fact, many of those initiatives are being driven by the revenue producers. Now that trade growth and expansion into new instruments has created a strain on trade processing, revenue producers recognize the importance of improving front-to-back data flows and better integration among systems.
A popular buzzword in capital markets today, service-oriented architecture (SOA), however, will not be the end of human intervention in processing. In fact, CIOs identified workflow tools as a slightly higher priority.
Nearly 70 percent of respondents indicated they would implement some process automation tool in 2007. The reality of doing more with less has translated for IT executives into providing ways to improve the efficiency of existing personnel. Particular areas of focus reside in new accounts, fails processing and instrument trade-matching, especially in fixed income and derivatives instruments.
Further, CIOs are leveraging process tools to create efficiencies around data management. Client data, counterparty data and securities reference data are all seeing a focus on data ownership, and process and auditing improvements.
With new workflow tools, enhanced integration efforts and an emphasis on process, governance initiatives are tearing down walls between business units and IT. While compliance ranks third in business priorities and fourth in IT initiatives, it has served as a road map for addressing the pain of putting in point solutions without an enterprise perspective. Firms have learned to incorporate compliance into governance and process initiatives. That road map serves to break down the two-party system between business and IT to find a common language and meet universal objectives.