Securities firms are focusing their IT budgets on preparing for the reduction in settlement timeframes to trade day plus one, according to a study conducted by TowerGroup for the Securities Industry Association. Firms estimate that they will spend $2.5 billion on the project over the next three years, but this is expected to rise to nearly $5 billion as the T+1 deadline approaches in 2004.
Donald Kittell, SIA's executive vice president, says: "Our member-firms are beginning the process of setting up T+1 project management offices and determining budgets for this transition. This industry initiative will pick up speed quickly now and account for the lion's share of Wall Street's technology investments for the next three to four years."
The study, "Technology Trends in the Securities Industry: Investing in Tomorrow's Infrastructure," surveyed 47 firms in March and April 2001, representing almost a quarter of the total industry's IT spending.
Ninety-three per cent of those responding categorised the impact T+1 will have as either major or significant. Sixty-eight per cent say that their preparations are in progress, and 76.1 per cent of the large firms (those with more than 4000 employees) already have a T+1 project office.
Sixty-nine per cent of the firms identified upgrading their internal processing systems, developing or enhancing global processing capabilities, or upgrading their infrastructure as their key project, with the T+1 deadline as the primary cause.
The majority of firms surveyed rate improving their retail distribution as a high priority, followed closely by enhancing their customer relationship management systems. The highest priority for the firms' operational budgets was improving retail Web services, 17 per cent of firms' information technology development spending is now on retail Web development, compared with 12% in 1998. In addition, firms will invest almost $1 billion on customer relationship management technologies in 2004, up from $981 million in 2000.
Overall, the study found technology spending is increasing, but at a slower rate than in the late 1990s. Total information technology spending in the financial services industry was $25 billion in 2000, a 17.3% compound annual growth rate from 1998's $18.4 billion. This is down from the 26.5% compound annual growth rate between 1996 and 1998; this trend is expected to continue, as the survey predicts a 7.8% CAGR between 2000 and 2004, when spending is predicted to reach $34.2 billion.