Today's financial market is so inexorably linked with technology that any technical difficulty can result in large amounts of monetary loss. A technical glitch that knocked out trading for only three hours at NASDAQ in August of this year resulted in losses of some $500 million among the largest trading firms.
Although not every financial institution trades two billion shares daily like NASDAQ, any IT infrastructure malfunction can have a devastating effect on an organization. A survey conducted by Ovum (News - Alert) titled, "2014 Trends to Watch: Financial Markets Technology" highlights the challenges the financial market will face in 2014 and the investment they are making in IT infrastructure to combat it.
A volatile market where profits are harder to come by – along with compliance regulations -- are forcing financial markets to increase their investments in IT in the coming year. According to the survey, 67 percent of respondents expect to increase their spending between one and six percent.
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The increase in investments is being driven to find new opportunities around the world and to manage the complexities associated with this move. As organizations move into these new markets, asset classes and trading venues, their dependence on technology will increase.
Additional spending will be geared toward customer retention. Customers are getting more impatient as profit margins continue to be elusive on the buy and sell side. The investment in IT will be directed to improve customer satisfaction and customer loyalty.
The survey also revealed 41 percent of the respondents will increase IT spending on compliance by one to five percent, while 17 percent said it will increase by six percent or more. The financial crisis of the past decade is responsible for creating many of the compliance laws that are in place. These regulations are designed to protect the consumer from further harm by making more information available to them before they make an investment decision.
"Regulatory compliance will continue to be a particularly large area of spending. The ever-increasing range of rules and regulations is requiring large investments and is currently consuming as much as 40% of overall IT budgets across the financial markets," said the report's author Rik Turner, a senior analyst of financial services technology at Ovum.
The survey determined the coming year will be of foundational investment for financial markets as they gear up to meet the compliance laws around the world by being more transparent under the Dodd-Frank, European Market Infrastructure Regulation (EMIR), the second EU Markets in Financial Instruments Directive (MiFID), and other rules covering the sector.
Edited by Rory J. Thompson