Wednesday, February 07, 2007

Stock exchanges need to up their game

In this climate of fundamental change and regulatory uncertainty, one would think that IT investment would be at the top of exchange CIO's list of priorities. After all isn't that why the NYSE bought ArcaEx and Nasdaq bought INET, for their technology.

It also perhaps explains why the US exchanges are going after their European counterparts. Not only are they looking to expand their footprint beyond the US into Europe where trading volumes are anticipated to rise. But let's face it European exchanges, at least the major ones that their US counterparts are looking to buy, have much more sophisticated electronic trading systems.

Given the acquisitive mood that the US exchanges appear to be in, is it any surprise that IT spending amongst global exchanges is growing slowly? TowerGroup estimates that exchanges globally spent $2.72 billion on IT in 2006 and that spending will grow at a rate of 3% through 2009 – breaking down to 4% in 2007 and slowing to 2% to 3% from 2007 to 2009.

Not surprisingly exchange IT spending is growing the slowest in the US, where analysts such as Larry Tabb have said that retaining NY's glory as an international financial centre is not just about reducing regulatory oversight, but also enhancing technology and connectivity in the US market.

According to TowerGroup, IT spending amongst European exchanges is growing moderately, while the burgeoning and flourishing exchanges of Asia, trying to cope with stock market 'bubbles', are growing the fastest.

Dushyant Shahrawat, research area director, Securities & Capital Markets, TowerGroup says:
"Of all the public exchanges, those in the United States are currently under the greatest pressure to reduce costs as they go electronic, in order to get their IT expense / revenue ratio in line with that of other financial firms and European counterparts."

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