Aite says algorithmic trading has hit the mainstream in the US equities market and is increasingly becoming the execution tool of choice for both the sell-side and the buy-side traders.

At the end of 2006 the share of algorithmic trading will approach one-third of total US equities trading volume, says Aite, but this will rise to 53% by the end of 2010.

Brad Bailey, a senior analyst at Aite Group, says the adoption of first-generation algorithms appears to be nearing its end in the US market. Instead, most brokers have moved on to develop more sophisticated algorithms that are capable of supporting portfolio trading, adapting to real-time changing market conditions and seeking darks pools of liquidity.

A separate report by Aite shows that bulge bracket firms currently account for over 65% of all algorithmic trading volume, followed by agency brokers with 31% of the market.

In recent months, bulge bracket firms have focused on developing next-generation algorithms and sophisticated trade analytics says Aite. But most bulge bracket firms have moved beyond providing algorithms for the US equities market and are seeking opportunities in the European and Asian markets as competition increases in the US.