Introduction
 
Despite improvements in European financial markets, persistent lethargic conditions have meant that technology investments are still shaped by cost and efficiency drivers. However, growth initiatives are increasing, although selectively. Where are the opportunities for trading vendors and how should they go to market? How should institutions operate and where can technology be best utilized?
 

 
Scope
 
Highlight trends and key areas of activities within capital markets sell-side trading sectors
 
Map out a picture of the market landscape, competitive dynamics and vendor strategies for trading solution vendors
 
Deliver strategic implications for both institutions & vendors, based on evolving market, competitor & financial services end-user dynamics.
 
Provide market opportunities & forecasts for applications expenditure across asset management, brokerage and private banking sectors
 
Highlights
 
Driven by the uncertainty in the broader capital markets environment as a whole, trading related technology spend will be focused on two tenets: building capability for product innovation, and operating a lean and mean organization
 

 
Larger Tier 1 banks with strong franchises in specific asset classes will continue to provide a market for asset-aligned trading specialists, but there will be increasing pressures to create cross asset capability
 

 
Amongst established end-user segments, institutional brokerages will still contribute the largest area of application spend, although asset management and private banking sectors will provide the highest growth at more than 8% CAGR
 

 
Reasons to Purchase
 
Understand trends and key areas of activities within capital markets sell-side trading sectors
 
Gain insight into how the interplay of end-user trading, regulation & FSI dynamics are driving a renewed focus in growth initiatives & IT investments
 
Obtain market forecasts for application spend across the various market participants

TABLE OF CONTENTS
 
EXECUTIVE SUMMARY 3
 
KEY FINDINGS 4
 
The future decoded 4
 
Competitive dynamics and strategic implications 4
 
Strategic implications for vendors 5
 
Strategic implications for institutions 5
 
CHAPTER 1 INTRODUCTION 11
 
What is this report about? 11
 
CHAPTER 2 MARKET CONTEXT 12
 
European trading – overview 12
 
Business drivers and trends 12
 
Regulation and political developments in the EU are not only imposing increased operating overheads but also changing the market structure and competition dynamics 12
 
Two years on from the trough of the downturn, cost firmly remains a strong business and IT driver in capital markets environment 14
 
Aggressive search for growth in higher-margin activities continues 14
 
Innovation and growth in complex derivatives products for financial risk management 16
 
Increasing emphasis on middle-office functions, especially credit and operational risk management activities 17
 
Integration of equities and fixed income sales and trading continues to be a feature 19
 
The rise of algorithmic (quantitative) trading in the US and increasingly in Europe 19
 
CHAPTER 3 BUSINESS / TECHNOLOGY IMPLICATIONS 22
 
The focus on data management now extends to underline end-to-end processes and applications 22
 
The return of STP, but not as we know it 23
 
External STP improvements are slow due to the complexity of the trade flow lifecycle amongst multiple parties involved 24
 
Evolution of product-centric systems towards multi-product back-office operations 26
 
Back-office restructuring momentum extends beyond IT infrastructure and applications consolidation 27
 
CHAPTER 4 THE FUTURE DECODED 30
 
Package application spend by end-user segment 30
 
Amongst established end-user segments, institutional brokerage will still be the largest area of application spend, although asset management and private banking will provide the highest growth 30
 
Hedge funds represent a continuing high-growth area for technology spend as ‘middle-sized’ firms emerge and competition heats up in the prime brokerage sector 31
 
Institutional brokerage – application spend by front, middle and back office 32
 
Driven by the uncertainty in the broader capital markets environment as a whole, trading-related technology spend will be focused on two areas: building capability for product innovation, and operating a lean and mean organization 32
 
CHAPTER 5 COMPETITIVE DYNAMICS 34
 
Introduction 34
 
Vendor offerings 34
 
Vendor landscape and implications 37
 
Strategic implications for vendors 38
 
Strategic implications for institutions 42
 
Conclusion 46
 
CHAPTER 6 APPENDIX 47
 
Definitions / Abbreviations 47
 
Relevant readings 52
 
Strategic Planning Program (SPP) writing team 52
 

 
LIST OF TABLES
 
Table 1: Packaged application spend by end-user segment, 2004–2006 30
 
Table 2: Institutional brokerage application location spend, 2004–2006 32
 

 

 
LIST OF FIGURES
 
Figure 1: Vendor landscape and strategic positioning 4
 
Figure 2: Key drivers of IT strategy in European financial markets 14
 
Figure 3: Capital markets businesses – the search for margins & growth 15
 
Figure 4: Growth in Derivatives, 2001–2004 16
 
Figure 5: Enterprise risk management 18
 
Figure 6: Algorithmic trading growth, 1994 - 2004 20
 
Figure 7: Data management – business and IT considerations 22
 
Figure 8: STP – not as it was previously 23
 
Figure 9: Trade flow lifecycle 25
 
Figure 10: Leveraging synergies across asset-specific applications 26
 
Figure 11: Restructuring trends 28
 
Figure 12: European packaged application spend by end-user segment, 2004–2006 30
 
Figure 13: Institutional brokerage application location spend, 2004–2006 32
 
Figure 14: Trade flow value chain / segments 34
 
Figure 15: Vendor offering matrix 35
 
Figure 16: Trading institutions’ approach to IT core systems development 36
 
Figure 17: Vendor landscape and strategic positioning 37
 
Figure 18: Adoption framework – next-generation computing 41
 
Figure 19: Sell-side focus for improving operational functions 42
 
Figure 20: Product design – Structured products / trades example 44
 
Figure 21: Componentization and component-based approaches in the middle and back office 45