Total US capital market spending on advanced trading technology is expected to reach $860 million this year, rising to $1.3 billion by 2010, according to projections from analyst firm Tabb Group.
In 2006, over half of institutional equities trades in the US were executed through direct market access (DMA), algorithms, programs or crossing networks and with steady growth in every electronic execution channel that percentage will increase to 64% by 2008, forecasts the research house.
Jeromee Johnson, senior research analyst at Tabb Group says this need for speed aligned with escalating market data volumes across all asset classes is ramping up tech spending across the industry.
"Firms are relying more than ever on time-series analytics, complex-event processing and more powerful automated-trading engines, applications requiring a support infrastructure consisting of more servers, greater bandwidth, new messaging capabilities and lower latency networks," he says.
The expense of maintaining high-capacity, low-latency networks – WAN and LAN combined – accounts for a quarter of advanced trading technology spending, says Johnson.
As the need for speed becomes more critical, the production lifespan of key components is falling rapidly. The average server production lifespan in 2006 was 4.2 years, but will fall to 2.3 by 2010, a 26% CAGR. Based on interviews, Tabb Group forecasts a 34% increase in demand for servers dedicated to high-performance computing.
Bulge bracket firms added over 16% more servers in 2006 than they were predicting in 2005 and they are adding more powerful computers. By 2008, says Tabb, nearly 25% of all servers will have four or more processor sockets.
The utilisation of Grid technology to share processing power across machines has become standard practice. Nearly 9 out of 10 sell-side firms have deployed Grid technology, another 8% are investigating or implementing Grid or utility computing and by 2009, Grid adoption by the sell-side will top 98%, states the report.