North American capital markets firms are planning to spend a total of US$36 billion on technology in 2005, based on current budgets and project plans, according to a study by Massachusetts-based research and advisory firm Financial Insights.
Based on primary interviews with many of the largest US financial services firms and a survey of over 200 financial institutions, the Financial Insights study predicts that after the relative IT spending slowdown of the past several years, IT investments are now beginning to show some signs of acceleration across the capital markets.
Financial Insights forcasts a compound annual growth rate (CAGR) of five per cent overall across the industry. This is higher than the financial services industry total growth rate of 4.5% CAGR.
However the estimate includes internal IT staff spending, as well as external spending at banks, broker/dealers, exchanges and insurance companies to support trading and investment management operations.
According to the study, average technology spending by sell-side firms remains at roughly double the spending of buy-side firms, but Financial Insights says one factor to watch over the coming 12 months will be the effect that changing soft dollar policies will have on this relative spending mix.
"We're seeing the initiation of some larger, more strategic projects aimed at some measure of transformation around the integration of solutions and data architectures," says Jin-Chul (Gene) Kim, senior analyst in Financial Insights' capital markets group. "Integration that impacts market presence and client-facing delivery, and ultimately revenues and margin, will change the way that capital markets firms look not only at their technology but also at their business processes. These are big projects and will certainly influence spend levels over the coming 12-24 months."