Bond dealers that want to boost their market share growth need to spend big on technology. That's the message of a new report into IT spending in fixed income trading.
According to Greenwich Associates, the top six US government bond dealers have an astonishing aggregate annual technology budget of $26 billion. Technology prowess has become the key determinant of success or failure for banks competing in capital markets, with the data showing that global and regional bond dealers that made the biggest IT investments over the past decade have also achieved the highest levels of market share growth.
And, while smaller dealers cannot afford the same tech spending as the largest banks, they can still benefit from the tech revolution. Whereas real-time pricing and automatic hedging were, until recently, only available to those with big technology teams and budgets to build them in-house, third-party providers are now paving the way for a longer list of fixed-income dealers to up their game—and profitability.
Meanwhile, a strong tech platform will be even more important in the future, given the increasing competition from new nonbank liquidity providers whose value proposition rests largely on their use of cutting-edge technology.
Kevin McPartland, head, market structure and technology research, Greenwich Associates, says: "Spending billions on new technology does not guarantee growth, as having right people and process in place to capitalize on the new capabilities remains critical. Nevertheless, the next generation of fixed-income dealers will succeed only with technology at their core."