With tremendous pressure facing the industry resulting in fewer hedge funds and reduced total assets under management, Tabb Group nonetheless found that over 75% of these firms clearly appreciate the benefits of electronic trading and want to trade multiple asset classes electronically, including listed options, listed futures, fixed income and FX.

Despite a 40% drop in total IT spending to $882 million in 2009 due to reduced revenues, Cheyenne Morgan, research analyst and author of the study, says that front-office trading operations will not suffer as radically as other areas of the firm.

"Any software or service that directly supports the investment process stands a far better chance against this inevitable tide of cost cutting," writes Morgan, based on interviews with 61 US-based hedge funds with a combined $227 billion assets under management, representing approximately 15% of total US-based hedge fund assets.

As budgets attempt to move from fixed to variable costs, Tabb Group believes that there will be an increase in buying rather than building solutions to help hedge fund traders execute orders within a complex structure of lit and dark markets.

"Competing within Wall Street's new ecosystem, technology vendors that develop smart order routers (SOR), order management systems (OMS) and execution management systems (EMS) need to insure that their solutions are flexible enough to accommodate several asset classes, addressing the interoperability of systems throughout the life of a trade, backed by end-user support services," says Morgan.

While 80% of funds currently use an OMS, it is difficult to use efficiently, particularly for non-equity trading, she says. As firms implement new technology, nearly a third say that their trading desks are the most challenged area of the automated operation. Because the feedback loop between the front office and other systems is short, with firms now holding positions for minutes, if not seconds, "over 40% are committed to making improvements, recognising that the back office can become compromised as a result of their fast-moving front office."