The Ovum report is an annual survey of 250 financial institutions across three sectors – retail, insurance and financial markets – and has been conducted by the analysis firm for more than 10 years. Specifically, it found that banks were more focused on IT spend for product accounting as part of a trend of investments in more complex, multi-asset strategies.
Ovum forecasts for growth in IT spend at sell side firms in next 18 months
Ovum forecasts for growth in IT spend at buy side firms in next 18 months
The reduction in investment comes at a time when firms face greater IT demands, as the volumes of data and the speeds required for intraday risk management and reporting increase significantly, according to the Ovum report. This will have implications for market, credit and liquidity risk at these firms. Buy-side firms will respond to the incoming regulations by focusing next year on making reports for clients on how portfolios are performing in terms of transparency, frequency and accessibility, especially as mobile devices become a more common method of checking on the weighting of investments in an account. Meanwhile, in 2013 the sell-side will need to increase the automation and optimization of its post-trade operations for markets such as FX, cash equities, futures and options in response to the incoming financial regulations, says the report. “Both sides of the financial services sector are steeling themselves for a conservative 12 to 18 months ahead in terms of IT expenditure,” says Rik Turner, the author of the Ovum report. “People at these companies are going to spend cautiously on IT.” SunGard’s Banham adds that independent research companies overseeing the IT services sector for financial markets firms have consistently reduced their estimates for the growth rate in 2013 spending on computer software and hardware technology, with some even halving their estimates between Q4 2011 and Q3 2012.
Comparatively, banks and investment firms would typically spend hundreds of millions of dollars per traded asset class – across FX, credit and rates, equities and commodities – on IT, both through in-house development and with outside vendors to ensure competitiveness, says Banham.
“Given current cost of capital concerns, our clients need to cut dramatically,” he says. “It’s not about just saving 10%. The numbers are significant – in the more-than 50% range.”