Securities: Tower/SIA Study on IT Spending Finds Firms Need to Shorten

In contrast to years past, the securities industry is now investing in information technology to create new products, design innovative ways to reach customers, analyze opportunities more quickly and execute trades faster, according to a recent survey by The Tower Group and the Securities Industry Association. North American securities companies as a whole spent $11.5 billion on information technology in 1996, with the top 17 firms accounting for 76 percent of the spending. And while securities firms have long been early adopters of technology, survey results show most companies are investing big chunks of their IT budgets in concepts that were relatively obscure several years ago. Most firms are predictably focused on remedying systems problems anticipated by the year 2000. Another of the fastest growing areas of IT spending is on Internet, Intranet and Extranet technology meant to streamline the dissemination of information, both internally and to clients. In 1996 an estimated $233 million was spent on Internet technology, a number the survey predicts to grow as high as $1.3 billion by 2000. Growing even faster than Internet spending is spending on Intranets and Extranets. The most common Intranet/Extranet content is equity research. Research on market data and analytical tools runs close behind. The focus of where IT dollars are spent is also noticeably shifting from trading room technology to back office processing and risk management technologies. Large firms listed trade processing and straight-through processing as technologies most important to them in 1996. When the same question was asked from a 2000 viewpoint, risk management eclipsed both. The monies still spent in the trading room are dedicated to showcasing trading opportunities and facilitating quicker trades. Smaller firms indicated they get more value for their budget allocation by outsourcing some of these functions. A dramatic shift is also expected in the hardware used by securities firms as Microsoft's Windows NT platform gobbles up market share. Windows NT is expected to increase its share of the industry's workstations from approximately 20 percent now to nearly 60 percent by 2000. Windows NT, which now holds 10 percent of the industry's server market, is expected to have the highest compound annual growth rate (38 percent). As spending on IT continues to have greater impact on profitability, the planning processes of many firms have not kept pace with the rapid advances in technology. Most firms indicated that they produce, disseminate and benchmark technology plans annually, a practice that led many respondents to state that the plans were often out of date when finalized. Firms need to shorten the planning cycle, the study suggests, to adapt to swift advances in technology and business strategies.