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Spending Cuts Could Spare Execution, Order Management Systems
January 5, 2009
Brokers and their institutional customers are expected to spend considerably less money on technology this year, but those cuts may be less pronounced for customer-facing and cost-saving products such as execution and order management systems. Still, some of the companies that supply those platforms may be rethinking their approach.
Research firm Tabb Group estimates that broker-dealer IT spending will drop by 20 percent in 2009 compared to last year, driven in large part by massive, firm-wide spending reductions at bulge-bracket firms. Thus far, the buy side's cutbacks are anticipated to be less severe.
"We're not seeing 20 percent cuts from the clients we deal with, but we're clearly seeing them cut back--more in the 8 percent to 10 percent range," said Paul Migliore, CEO of Boston-based Citisoft, a subsidiary of India's Satyam Computer Services that advises asset managers worldwide on technology and operations issues. "No one is going to be increasing IT spending in 2009," added Migliore.
While the diminished spending most directly affects the Wall Street firms, it is clearly having ripple effects on the companies with which they do business. In the case of the brokers, that applies to their institutional clients as well as the technology vendors they use. Both sell- and buy-side firms, however, want to be prepared to take advantage of the next bull market, so the severity of cuts is likely to vary across departments, which bodes well for providers of order management systems (OMS) and execution management systems (EMS).
New York-based Tabb Group anticipates the sell side will slash costs dramatically in the back and middle offices--except for risk management functions--and revenue-generating departments such as investment banking, according to Robert Iati, head of consulting. However, certain trading technologies will be an important part of retaining clients during the rough patch and being prepared when markets turn around. "We look at spending on customer-facing technology coming down 5 percent to 10 percent," said Iati.
That's good news for EMS providers, perhaps especially for the independent ones. The brokers, and increasingly the institutional investors, trading through the execution systems of the biggest Wall Street firms--Goldman Sachs' RediPlus and Morgan Stanley's Passport, for example--have been given free access to those platforms. Credit losses, however, have forced most of those firms to cut costs across the board.
Following Lehman Brothers' collapse in September, Townsend Analytics and its RealTick EMS--acquired by Lehman in 2005--were purchased, along with the rest of the investment bank's U.S. operations, by Barclays Capital. A spokesperson for Barclays, a powerhouse in fixed income and derivatives, noted that the firm has kept Lehman's U.S. equity business in its entirety, including its head, Jerry Donini, as it integrates equities and structured products worldwide. RealTick is viewed as an integral part of that platform and will retain the independent status it held under Lehman. "Barclays is committed to Townsend Analytics," he said.
In the wake of rumors that Lava Trading, which Citigroup bought in 2004, had laid off 20 or more sales staff and relationship managers over the last few months, clients began to grumble. Such executives are vital to providing efficient customer service and tend to reflect a firm's support for a product. But Shane Swanson, head of Citigroup's Lava-branded market-access products since November 2007, said layoffs at the unit--about 12, according to a source close to the company--were in-line with reductions across the rest of the firm. Lava didn't eliminate any developers, said Swanson.
