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March 8, 2011 – Securities firms will increase their spending on broker workstations, execution systems, co-location and other technologies by 6 percent this year, according to a survey of 24 chief information officers or equivalents on Wall Street.

Overall spending should hit $44.1 billion in 2011, up from $41.6 billion in 2010, according to the new report from Aite Group. But where 21 percent of desktops are operating as "virtual" machines at the start of the year, only 13 percent will be at the end of 2011, Aite projects.

The regulatory impact of the 2008-09 credit crisis as well as the 2010 Flash Crash appears to be affecting spending priorities, the survey indicates.

The top spending "vote-getters" in the survey were spending on client reporting systems (81 percent), compliance (81 percent), information security (76 percent), systems integration (76 percent) and risk management (76 percent).

New circuit-breakers and other protective systems are being required by federal regulators in the aftermath of the May 6 bungee jump in market prices; the Dodd-Frank Wall Street Reform Act was passed in July and hundreds of rules are forthcoming; and, in Europe, changes are being prepared for the Markets in Financial Instruments Directive.

"While many of these regulatory initiatives have yet to articulate demands on capital markets firms, they are high on the minds of capital markets senior technologists,'' Aite said, in prefacing the release of the report.
Other key points:

• Systems integration is the overall top priority
• Compliance and market structure are two out of the top three priorities in business groups operating in securities firms
• Market data terminals are the top area of cost reduction, for third year in row
• Modernizing "legacy" systems is the top cost-cutting initiative for the CIOs
• Desktop virtualization was a one-year experiment; as noted, traditional desktops "are on their way back"
• Cloud-computing tests will see a "significant uptick in 2011,'' as firms try to contract out the operation of more of their networks, systems and applications

“As more CIOs look to outsource non-differentiating components of their infrastructure, Aite Group expects that certain groups of vendors will have rare opportunities to unseat internal development in 2011,” says Adam Honoré, research director with Aite Group and author of the report.

This story originally appeared on Securities Technology Monitor.

Tom Steinert-Threlkeld is the editor-in-chief of Securities Technology Monitor.