Spending on technology by sell side firms in North America will rise at a compound annual growth rate (CAGR) of just 1.3% through to 2011 - down significantly from the 8.5% growth seen between 2004 and 2007, as companies hit by the credit crunch revise IT budgets, according to a study by analyst house Celent.
To combat the current and expected hit on revenue and profits by the credit crisis, brokerages are adjusting their "technological priorities" in the short run, says Celent.
But while the rate of technology spending growth will fall, the current crisis is unlikely to have the same impact as the dotcom bust which saw IT spending fall by 7.5% CAGR between 2001 and 2003, says the analyst.
In the longer term Celent says there will be a shift in focus from spending on front office execution capabilities, towards back and middle office operational efficiency projects.
In the back and middle office, the focus will be on integration and consolidation of applications and services and streamlining of processes following a period of spending on execution capabilities.
David Easthope, senior analyst, Celent securities and investments group, says: "In line with moderate expectations for growth and a decreased appetite for grandiose IT projects, operational efficiency and cost-reducing initiatives will be the centerpiece of many brokerage firms' IT plans."
Risk management, compliance, and portfolio valuation also continue to be high on the IT list. Meanwhile in Europe MiFID will drive some spending on technology over the next few years.
To be well positioned for the short and long-term, IT vendors will have to meet the sell side's needs for cost-efficient and flexible services and systems in lean times, says Celent. Flexibility in software and services delivery will be an important differentiator for vendors in the years to come.