Spending on technology in capital markets will pick up again in 2011, according to a report from a United Kingdom research firm. And "revolutionary change" will drive spending on technology to clear swaps in the United States, according to a New York research firm.
Worldwide spending on information technology for financial markets will pick up 4.5% in 2011, after growing just 0.3% this year, according to Ovum.
That will put it back at 2008 levels. Spending actually dropped 4.2% in 2009, by Ovum's accounting.
Spending is starting to pick up in Asia, as competition and high-frequency trading start to increase. Vendors "need to be aware that the Asia region will continue to grow in importance,'' said analyst and report author Daniel Mayo. But London and New York will remain "the key hubs" of financial markets.
Markets will continue to be volatile, Ovum, said, but companies will be spending not just on making sure their front offices and back offices perform as they should. They will also be spending on systems that help them comply with a worldwide onslaught of new regulations, aimed at preventing another global financial crisis.
That is driving the spending by swaps ealers in the U.S. A study by the Tabb Group estimates that the top 15 swap dealers will invest $385 million as part of an industry move toward creating a central clearing facility.
The number of dealers handling swaps will reach 30 next year, Tabb estimated.
“The OTC derivatives market is in for revolutionary rather than evolutionary change,'' said analyst and author Kevin McPartland.
“Phones won’t disappear, high-frequency swaps trading will not be born overnight, but the area in between will see these markets grow,'' he said.
Regulations on OTC derivatives are being drawn up by regulators and are expected to be in place by July 2011.
The top 15 banks will spend a further $290 million on technology to ensure more efficient workflow processes to replace existing systems, the report revealed.