14 December 2017
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Institutional investors shift trading desk spending to tech

28 February 2017  |  2404 views  |  0 Source: Greenwich Associates

Institutional investors in 2016 increased budgets to fixed-income trading desks in preparation for shifts in the interest-rate environment, and continued to ramp up IT budgets to keep pace with the dramatic changes technology is triggering in financial markets around the world.

Despite these shifts, institutions held off from making any radical changes on their trading desks in 2016 as they assessed the impact of macro-economic variables including the Trump victory in the United States, the ongoing Brexit process in Europe and long-awaited action by the U.S. Federal Reserve.

Those are among the main findings in a new report from Greenwich Associates, Technology Helps Buy-side Prepare for Uncertainty. From June through November 2016, Greenwich Associates interviewed 270 buy-side traders across the globe working on equity, fixed-income or FX trading desks to learn more about budget allocations, trader staffing levels, OMS/EMS/TCA platform usage, and the impact of market structure changes.

Institutions reported an average trading desk budget (for compensation and technology expense only) of $35.8 million, a level essentially flat from 2015. Institutions increased fixed-income trading desks budgets by an average 3% year-over-year, while decreasing budgets for equities and FX desks by 1%. Buy-side trading desk headcount was flat from 2015-2016, and compensation expenses continue to represent the majority of trading desk budgets.

However, last year institutions shifted budget allocations from compensation to technology. In 2015, compensation expenses made up 70% of trading desk budgets; that share fell to 65% in 2016, with the difference shifting to technology. Institutions continued to devote sizable shares of their budgets to market data terminals, and increased their spending on Execution Management Systems (EMS) and Transaction Cost Analysis (TCA) from year to year.

“More than one-third of volume traded globally in fixed-income markets is now executed electronically,” says Kevin Kozlowski, Institutional Analyst at Greenwich Associates and author of the new report. “Couple that with three-quarters of approximately 2,500 respondents in our most recent FX study reporting use of electronic trading for some of their trading volume and it should be no surprise that technology budget allocations are going to be increasing for the foreseeable future.” 

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