Securities firms are opening their wallets to purchase new hardware, software and other technical infrastructure to handle skyrocketing amounts of market data, according to an Aite Group report highlighted during a panel presentation at last month's TradeTech conference in New York.

In fact, creating that infrastructure has become the top development priority for 2010, according to 17 chief information officers polled by Aite Group.

"We asked CIOs of electronic trading firms where they were spending their budgets and their focus in 2010, and, as you can see, market data leads the development roadmap for most folks," said Adam Honore, research director with Aite Group.

When asked by Aite which area they currently have the most development activity, 41% of the 17 CIOs surveyed responded market data; 24% cited order routing, 18% order placement.

"Initially, we found that people said they wanted to try to cut their market data budgets which turned into more terminal cost cuts, but from a platform perspective... you'll see that budgets have actually been going up," explained Honore.

Global spending on market data infrastructure will increase about 2 percent, by Aite's estimate, to more than $7.8 billion, in Aite's estimate.

That 2 percent annual increase has been consistent even through the economic downturn during which some firms sent technology projects to the cutting board, Honore said.

Market data infrastructure spending, though, was not a part of the cuts.

"We estimate that firms are going to spend not quite $8 billion dollars on their infrastructures globally, which is pretty expensive and includes all of your messaging middleware, your feed handlers, your performance databases, [complex event processing] engines," said Honore.

The industry should anticipate data doubling this year. This is "not necessarily because of equity volume spikes, but because of a series of ancillary events around regulatory changes, fragmentation, things going on like (the Tokyo Stock Exchange)'s Arrowhead project, new interest in moving into places like (foreign exchange)," he said.

"These infrastructures need to be built for agility and we see a lot of customers with some in-points there," said Honore.

Joe Lutkevich, senior managing director of State Street Global Advisors, who concentrates on decision support risk systems and enterprise data including market data, firm, said, athis firm, "data is 'central' to everything we do."

"Where we see growth, at least from the quantitative side, is in the use of what we call the 'as-at' data versus 'as-of' time, so point-in-time has become very, very important for us to be able to truly evaluate our signals," explained Lutkevich.

Today, there aren't many companies delivering that, however, there are solutions such as Thomson Reuters' Worldscope Fundamentals data service and research tools from Capital IQ which can help produce more integrated data sets, Lutkevich said.

"The key here is how do you cap expense but also take advantage of all of the new types of data you need?" said Lutkevich.

When asked if he sees areas where firms are in fact able to cut or control costs, Honore said it depends on the institution and what it is trying to achieve. If it is trying to beat the speed of light, for instance, firms may have to invest in co-location facilities or purchase hardware acceleration tools.

While getting faster hardware can be perceived as very expensive, it can be a cost saver, from a power and rack space perspective, if a firm is moves into a co-location facility, noted Honore.

For instance,"we've seen a lot of people build a lot of technology they would have been just fine off the shelf with, for example, messaging middleware," said Honore. He said he has seen a lot of smaller firms build messaging middleware and feed handlers they didn't have to that are readily available from third parties.

"There is no one out there that builds the perfect market data infrastructure," said Lutkevich. "The way we approach it at State Street is to not force our vendors to become what we want. We negotiate with our vendors. We look at them and tell them, 'this is our expectation, this is what you say you deliver and we test them on that.' We don't try to transform their product. We bring it in as they say it should be and then we do our internal transformations to make it as we want it. But we don't hold our vendors to something they can't deliver."

The findings were discussed on a panel titled "Processing Market Data More Efficiently-Doing More With Less." The discussion was moderated by Jon Fatica, managing director of post-trade analytics at Investment Technology Group (ITG).

This article can also be found at SecuritiesIndustry.com.

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