Securities Industry IT Spend to Hit $71.5 Billion

With the global securities industry now emerging from a three-plus year slump, ’04 IT budgets are again on the rise. New research finds that while the double-digit IT spending increases — characteristic of the 1990s — are a thing of the past, firms are now ready to invest in technology at a controlled and measured pace.

“We expect to see the global securities industry invest $71.5 billion in information technology in 2004, said Rob Hegarty, vice president of the Securities & Investments practice at TowerGroup, research and consulting firm focused on the global financial services industry.

“This represents a marginal increase of 1.4% over 2003, still far below the highs hit in IT spending of $86.2 billion back in 2000. However, a return to stable and growing IT budgets takes on greater significance following this period of major downturn and intense tech cost-cutting.”

Between 2004 and 2008, TowerGroup believes the highest percentage of the industry’s IT investments will be focused on the asset management arena. This is good news for a sector where IT spending over the last three years had been declining at more than 4% a year.

Highlights of the new research include:

* The North America securities industry is pulling ahead of the rest of the world in percentage of IT spending, albeit marginally. In 2004, North America will account for over 42% of worldwide securities IT spending, up from 40% in 2001.

* CIOs in the North American securities industry are becoming more reliant on external technology providers (hardware, software and service firms, including offshore outsourcing). In 1996, securities firms allocated 43% of IT budgets to external technology providers. TowerGroup projects that this number will grow to 58% by 2008.

* Over the next five years, TowerGroup expects asset management IT spending to grow by approximately 200 basis points more than any other area in the securities industry [GRAPHIC AVAILABLE ON REQUEST]. A winning combination of the financial markets returning to a growth stage and a movement away from transaction-based models to fee-based (or asset-based) models is fueling increased demand for better technology to support this function.

* Institutional brokerage firms are eager to again leverage technology to gain an advantage on their trading desks, modernize their infrastructure and improve their customer service models. TowerGroup projects that broker/dealers will globally spend nearly $50 billion on institutional technology maintenance and development in 2004, up slightly from 2003.

* After three years of minimal-to-flat growth in IT spending, the North American retail brokerage industry is spending again in 2004 with a budget of over $5 billion dollars, up over 4% from 2003. The bulk of these IT expenditures will fall to three categories: core processing and trading ($1.69 billion); trading tools, analytics and broker workstations ($926 million); and content, decision support, advice, and planning ($926 million).

Hegarty noted the securities industry is poised for a significant shift not only in spending, but also in the manner in which IT budgets are managed and dollars allocated and approved. “With ‘cautious optimism’ as the watch word of the day, the industry is taking a like approach to IT spending, being careful not to fall back into the old ways of the 1990s,” he said.

Want to discuss any of the issues raised in this article? Take it over to our IT Management Forum.

This article was compiled and edited by CIO Update staff. Please direct any
questions regarding its content to Allen Bernard, Managing Editor.