New Research Also Examines Implications of These Top Trends for Sell-Side Institutions

NEEDHAM, MA, August 11, 2003�While institutional brokerages remain bound by strict budgetary constraints, an array of forces are driving them to invest in technologies that will help them keep pace with dynamic changes in market structures, meet a host of new compliance/regulatory issues, and gain the competitive advantage afforded by new technology architectures.

New research from TowerGroup identifies the five major trends driving institutional brokerage technology decisions, as well as their implications for all top sell-side players. These issues are:

  • Operational efficiency: While straight-through processing (STP) reigns as the most prominent solution to efficiency for all brokers, firms are now extending efficiency initiatives to the front and middle office in a continued effort to improve operations.
  • Need for a new value proposition: Brokerage revenues originating from proprietary trading and commissions represent only 29% of the industry�s total revenue today � a dramatic fall from 58% in 1980 (graphic available). Brokerages are now aggressively seeking a new value proposition that will enable them to reacquire the confidence of consumers, gain competitive advantage and generate new business.
  • Changing market structure: Institutional brokerages are contending with the twilight of the geocentric, �open-outcry� trading model while preparing for the true globalization and automation of financial markets. At the same time, their trading technology is struggling to keep up with the bobbing and weaving of current shifts in market structure.
  • Technology infrastructure: The closed legacy systems that prevail across the industry today are often unable to take advantage of the best available solutions. Institutional brokerages are now aggressively looking to distributed systems, open source alternatives like Linux, and grid computing solutions for technology transformation.
  • Regulatory focus: Still recovering from the recent blows of fraud and front-running citations, brokers are readying for an upcoming wave of new regulations. Led by investments to meet USA PATRIOT Act requirements, institutional brokerages will commit a greater level of resources to comply with a range of new rules.

�Recognizing the major trends driving the industry�s current business and technology decisions is only part of the equation,� said Robert Iati, research director of the Securities & Capital Markets practice at TowerGroup and author of the research. �Even more critical is understanding the implications of these trends, so that sell-side institutions can be best prepared for the changes ahead in the competitive landscape.�

Iati noted that TowerGroup sees a handful of significant implications stemming from the top five trends. �We believe that the forces currently acting on the institutional brokerage market will produce an even greater focus on processing efficiency, a renaissance in addressing the reference data challenge, a growing use of alternate sourcing for strategic issues like architecture and client service activities, and a restructuring of order management solutions,� he said.

Those interested in purchasing a copy of the research may contact TowerGroup at 1-781-292-5200 or [email protected]

About TowerGroup: TowerGroup�now celebrating its 10th year�is the leading research and advisory company focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world�s largest financial services, technology and consulting firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in New York, London, and Kuala Lumpur, TowerGroup serves a global client base.

Visit TowerGroup’s web site at for more information.