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
