Trading system transformation in global markets (Review Report)

Publication Date	December 2006
Publisher	Datamonitor
Product Type	Report
Pages	75
ISBN Number	not applicable
Product Code	DAT03939

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Summary

Introduction

This report combines all eight briefs from the trading system transformations theme for Q3 2006. Areas covered include an overview of drivers behind automation in the front office, an explanation of various algorithmic trading strategies in use as well as an examination of technology considerations behind their implementation.

Scope

Covers US, Europe and Asia
Forecasts IT spend, split by region and institution type

Highlights

Sophisticated trading tools are rising in demand for lowering transaction costs, discovering hidden liquidity located amongst abundant data volumes and generating superior returns, whilst maintaining a view of risk management.

Products such as futures, options and FX have been the first instruments to move into the algorithmic trading space, building on their electronic capabilities. Market leaders in this sector are thought of as being more technologically savvy and having experienced algorithms in equities may find the switch to more structured products easier.

Another area of focus for institutions has been event stream processing (ESP), a technology fuelled by the desire to use greater computing power to analyze streaming data. This technology aims to detect patterns in vast amounts of incoming market data in order for algorithms to efficiently act.

Reasons to Purchase

Understand the driving forces behind demand for automated trading tools
Gain visibility on the latest developments in algorithmic trading
Use our timely and concise analysis of key business and technology issues to develop a compelling go-to-market strategy

Content

Catalyst
Summary
Executive Summary
- Introduction
- The adoption of algorithmic trading methods (Market Focus)
- The evolution of algorithmic trading (Strategy Focus)
- Key technology considerations for algorithmic trading capability (Technology Focus)
- US algorithmic trading spend (Databook)
- European algorithmic trading spend (Databook)
- Asia-Pacific algorithmic trading spend (Databook)
- Global algorithmic trading spend (Databook)
- Total algorithmic trading spend (Databook)
The Adoption Of Algorithmic Trading Methods (Market Focus)
- Summary
- The need for better execution is driving a renewed focus on front office trading tools
- Explosion of market data is putting pressure on achieving best execution
- Growth of electronic channels is permitting greater automation in the trade execution process
- Algorithms are increasingly being seen as a necessary tool to help achieve best execution
- Algorithms the key to optimally slice and dice orders
- Close management of algorithms is necessary to help traders achieve efficiency goals
- Algorithms need to be adapted to suit individual market conditions to be successful
- Certain factors of the US market facilitate algorithmic use
- European and Asian markets must overcome structural and regulatory factors that inhibit algorithmic growth
- Regulation acting as a catalyst for algorithm growth
- Traditional buy-side managers are demanding greater levels of control over execution
- Asset managers move onto the algorithmic path
The Evolution Of Algorithmic Trading (Strategy Focus)
- Summary
- The growth of algorithms is driving new responsibilities for the buy-side in the trading process
- Technology is gradually shaping a new role for the sell-side
- The abundance of algorithms is placing increased focus on analyzing transaction costs
- Choosing between algorithms from one provider
- Choosing between different providers' algorithms
- Newer products will follow a different evolutionary cycle to that of equities
- Different products are emerging on the algorithmic use but progression must be hesitant
- The next generation of algorithms will target greater intelligence to combat competition
- Customised algorithms
- Portfolio algorithms
- Algorithms adapting to events
- Advanced algorithms moving up the value chain
- Alternatives to using sell-side institutions are gaining in popularity for algorithm access
Key Technology Considerations For Algorithmic Trading Capability (Technology Focus)
- Summary
- An increased amount of focus is now being placed on effective algorithm implementation
- Key requirements
- Demand is increasing for enhanced trading desktop functionality
- Firms are turning to real-time data analysis tools to enhance execution quality
- A shift in the use of TCA is occurring
- The demand for increased latency is driving investment in data infrastructure
- Architectural structure considerations
- Greater technological intelligence will be required to obtain superior trading performance
- Innovative algorithms are emerging
Us Algorithmic Trading Spend (Databook)
- Introduction
- Definitions
- Sell-side front office trading and market data technology spend
- Buy-side front office trading and market data technology spend
- Sell-side algorithmic trading spend, split by product
- Buy-side algorithmic trading spend, split by product
European Algorithmic Trading Spend (Databook)
- Introduction
- Definitions
- Sell-side front office trading and market data technology spend
- Buy-side front office trading and market data technology spend
- Sell-side algorithmic trading spend, split by product
- Buy-side algorithmic trading spend, split by product
Asia-Pacific Algorithmic Trading Spend (Databook)
- Introduction
- Definitions
- Sell-side front office trading and market data technology spend
- Buy-side front office trading and market data technology spend
- Sell-side algorithmic trading spend, split by product
- Buy-side algorithmic trading spend, split by product
Global Algorithmic Trading Spend (Databook)
- Introduction
- Definitions
- Sell-side front office trading and market data technology spend
- Buy-side front office trading and market data technology spend
- Sell-side algorithmic trading spend, split by product
- Buy-side algorithmic trading spend, split by product
Total Algorithmic Trading Spend (Databook)
- Introduction
- Definitions
- European front office trading and market data technology spend
- US office trading and market data technology spend
- Asia-Pacific trading and market data technology spend
- Global trading and market data technology spend
- European algorithmic trading spend, split by product
- US algorithmic trading spend, split by product
- Asia-Pacific algorithmic trading spend, split by product
- Global algorithmic trading spend
Appendix
- Definitions
- Extended Methodology
Further reading
- Ask the analyst
List of Tables
- Table 1: Algorithmic trading definitions
- Table 2: Sell-side front office trading and market data technology spend
- Table 3: Buy-side front office trading and market data technology spend
- Table 4: Sell-side algorithmic trading spend, split by product
- Table 5: Buy-side algorithmic trading spend, split by product
- Table 6: Algorithmic trading definitions
- Table 7: Sell-side front office trading and market data technology spend
- Table 8: Buy-side front office trading and market data technology spend
- Table 9: Sell-side algorithmic trading spend, split by product
- Table 10: Buy-side algorithmic trading spend, split by product
- Table 11: Algorithmic trading definitions
- Table 12: Sell-side front office trading and market data technology spend
- Table 13: Buy-side front office trading and market data technology spend
- Table 14: Sell-side algorithmic trading spend, split by product
- Table 15: Buy-side algorithmic trading spend, split by product
- Table 16: Algorithmic trading definitions
- Table 17: Sell-side front office trading and market data technology spend
- Table 18: Buy-side front office trading and market data technology spend
- Table 19: Sell-side algorithmic trading spend, split by product
- Table 20: Buy-side algorithmic trading spend, split by product
- Table 21: Algorithmic trading definitions
- Table 22: European front office trading and market data technology spend
- Table 23: US front office trading and market data technology spend
- Table 24: Asia-Pacific front office trading and market data technology spend
- Table 25: Global front office trading and market data technology spend
- Table 26: European algorithmic trading spend, split by product
- Table 27: US algorithmic trading spend, split by product
- Table 28: Asia-Pacific algorithmic trading spend, split by product
- Table 29: Global algorithmic trading spend
List of Figures
- Figure 1: Trading process
- Figure 2: Electronic trading growth 2000-2005
- Figure 3: Algorithmic trading strategy examples
- Figure 4: Algorithmic trading strategy examples
- Figure 5: Asian market trading details
- Figure 6: Investment currently focused on trading tools in the front office
- Figure 7: The path to algorithmic adoption for equities may not be standard for other products
- Figure 8: 2006 next-generation broker algorithms
- Figure 9: Sell-side front office trading and market data technology spend
- Figure 10: Buy-side front office trading and market data technology spend
- Figure 11: Sell-side algorithmic trading spend, split by product
- Figure 12: Sell-side algorithmic trading spend, split by product
- Figure 13: Buy-side algorithmic trading spend, split by product
- Figure 14: Buy-side algorithmic trading spend, split by product
- Figure 15: Sell-side front office trading and market data technology spend
- Figure 16: Buy-side front office trading and market data technology spend
- Figure 17: Sell-side algorithmic trading spend, split by product
- Figure 18: Sell-side algorithmic trading spend, split by product
- Figure 19: Buy-side algorithmic trading spend, split by product
- Figure 20: Buy-side algorithmic trading spend, split by product
- Figure 21: Sell-side front office trading and market data technology spend
- Figure 22: Buy-side front office trading and market data technology spend
- Figure 23: Sell-side algorithmic trading spend, split by product
- Figure 24: Sell-side algorithmic trading spend, split by product
- Figure 25: Buy-side algorithmic trading spend, split by product
- Figure 26: Buy-side algorithmic trading spend, split by product
- Figure 27: Sell-side front office trading and market data technology spend
- Figure 28: Buy-side front office trading and market data technology spend
- Figure 29: Sell-side algorithmic trading spend, split by product
- Figure 30: Sell-side algorithmic trading spend, split by product
- Figure 31: Buy-side algorithmic trading spend, split by product
- Figure 32: Buy-side algorithmic trading spend, split by product
- Figure 33: European front office trading and market data technology spend
- Figure 34: US front office trading and market data technology spend
- Figure 35: Asia-Pacific front office trading and market data technology spend
- Figure 36: Global front office trading and market data technology spend
- Figure 37: European algorithmic trading spend, split by product
- Figure 38: US algorithmic trading spend, split by product
- Figure 39: Asia-Pacific algorithmic trading spend, split by product
- Figure 40: Global algorithmic trading spend
- Figure 41: Global algorithmic trading spend, split by product
- Figure 42: Global algorithmic trading spend, split by product