Abstract
This Financial Insights report discusses how the market for exchanges and
alternative trading environments is facing continued consolidation and how the
future structure of the industry is uncertain. The only certainty is that
further change is inevitable as technology continues to evolve and market
participants continue to adapt their business models to the needs of a changing
landscape. New regulations are creating a more level playing field, and
continued fragmentation of the market remains inevitable despite the pressures
of consolidation. However, as trading venues become fewer, increased
transparency is bound to become greater. But, this will need to be balanced in
some way or other with the market' s continued need for anonymity. The
regulations for exchanges hark back to the postdepression era in the United
States and are increasingly out of balance with the pressures of a rapidly
changing global environment where a global model of principles and guidance
needs to replace a regional model of compliance and punishments. In a rapidly
changing technology environment, mistakes will be made that are not necessarily
transgressions.
"Technology is reshaping the equity trading environment. As exchanges
consolidate, globally alternative trading venues continue to proliferate thanks
to a technology environment that makes them increasingly more accessible to
market players. The trading cycle is becoming increasingly more integrated
through the pressure of straight-through processing and the need to reduce
operational risk while at the same time support more complex trading
strategies. Buy-side firms are becoming increasingly in control of the trading
process, which had once been outsourced to sell-side firms. In response, the
sales side has invested heavily in new technology to secure its increasingly
consolidated relationships with the buy side, squeezed between an increasingly
monopolistic exchange environment and an increasingly tougher customer
environment. The sales side has responded by investing in multiple regional
exchanges and trading venues and investing aggressively in more customized
algorithmic trading solutions for the increasingly more sophisticated buy-side
community. How will the buy side respond? Will buy-side firms use technology to
increase their independence, or will they build closer relationships with fewer
sell-side partners for the longer term? Either way, this market will continue
to see increased IT spending in the months and years ahead, far in excess of
other sectors of financial services. Finally, the information services
environment is increasingly moving toward faster and more integrated
information delivery and sharing solutions." - David Cox, group vice president,
Global Head of Research, Banking, Insurance, and Capital Markets
Table of Contents
- Table of Contents
- Financial Insights Opinion
- In This Report
- Situation Overview
- Figure: Number of Brokers Used by Firm, 2005 and 2006
- Figure: Firm' s Use of DMA, 2005 and 2006
- Figure: Trading Executed via DMA, 2005 and 2006
- Figure: Commission Rate Paid for DMA Trades, 2005 and 2006
- Figure: Number of Brokers Used for DMA Trading, 2005 and 2006
- Figure: Trading Executed via Crossing Networks, 2005 and 2006
- Figure: Commission Rate Paid for Crossing Network Executions, 2005 and 2006
- Figure: Trading Systems Subscribed to by Firm, 2005 and 2006
- Figure: Sources of Analytics Support, 2005 and 2006
- Figure: Influence Trading Analytics Has on Firm' s Decision to Trade, 2005 and 2006
- Figure: Length of Time Using Algo Trading, 2005 and 2006
- Figure: Algo Trading Use Expectations, 2005 and 2006
- Figure: Likelihood of More Algo Trading Use for Mid Cap and Small Cap Than One Year Ago, 2006
- Figure: Likelihood of More Algo Trading Use for Trades Above Some Daily Volume Threshold, 2005 and 2006
- Figure: Broker' s Ability to Provide Algorithms Influence Decision to Use a Broker, 2005 and 2006
- Figure: Customization of Existing Algorithms or Development of Proprietary, 2005 and 2006
- Business Need
- Management Challenges
- The Approach
- Best-of-Breed Strategies
- Differentiating the Adopters
- Future Outlook
- Essential Guidance
- Actions for Financial Institutions
- Actions for Vendors
- Learn More
- Related Research
- Synopsis
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