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Trading System Transformation in Global Markets


Description: This report combines all eight briefs from the trading system transformations theme for Q3 2006. Areas covered include an overview of drivers behind automation in the front office, an explanation of various algorithmic trading strategies in use as well as an examination of technology considerations behind their implementation.


Scope of this title:
- Covers US, Europe and Asia
- Forecasts IT spend, split by region and institution type


Highlights of this title:
Sophisticated trading tools are rising in demand for lowering transaction costs, discovering hidden liquidity located amongst abundant data volumes and generating superior returns, whilst maintaining a view of risk management.

Products such as futures, options and FX have been the first instruments to move into the algorithmic trading space, building on their electronic capabilities. Market leaders in this sector are thought of as being more technologically savvy and having experienced algorithms in equities may find the switch to more structured products easier.

Another area of focus for institutions has been event stream processing (ESP), a technology fuelled by the desire to use greater computing power to analyze streaming data. This technology aims to detect patterns in vast amounts of incoming market data in order for algorithms to efficiently act.


Reasons to order your copy:
- Understand the driving forces behind demand for automated trading tools
- Gain visibility on the latest developments in algorithmic trading
- Use our timely and concise analysis of key business and technology issues to develop a compelling go-to-market strategy


Contents: CATALYST
SUMMARY


Introduction 2
The adoption of algorithmic trading methods (Market Focus) 2
The evolution of algorithmic trading (Strategy Focus) 2
Key technology considerations for algorithmic trading capability (Technology Focus) 3
US algorithmic trading spend (Databook) 3
European algorithmic trading spend (Databook) 4
Asia-Pacific algorithmic trading spend (Databook) 4
Global algorithmic trading spend (Databook) 4
Total algorithmic trading spend (Databook) 5

THE ADOPTION OF ALGORITHMIC TRADING METHODS (MARKET FOCUS)
Summary 10
The need for better execution is driving a renewed focus on front office trading tools 10
Explosion of market data is putting pressure on achieving best execution 10
Growth of electronic channels is permitting greater automation in the trade execution process 11
Algorithms are increasingly being seen as a necessary tool to help achieve best execution 14
Algorithms the key to optimally slice and dice orders 14
Close management of algorithms is necessary to help traders achieve efficiency goals 15
Algorithms need to be adapted to suit individual market conditions to be successful 17
Certain factors of the US market facilitate algorithmic use 17
European and Asian markets must overcome structural and regulatory factors that inhibit algorithmic growth 17
Regulation acting as a catalyst for algorithm growth 18
Traditional buy-side managers are demanding greater levels of control over execution 19
Asset managers move onto the algorithmic path 19

THE EVOLUTION OF ALGORITHMIC TRADING (STRATEGY FOCUS)
Summary 21
The growth of algorithms is driving new responsibilities for the buy-side in the trading process 21
Technology is gradually shaping a new role for the sell-side 21
The abundance of algorithms is placing increased focus on analyzing transaction costs 23
Choosing between algorithms from one provider 23
Choosing between different providers algorithms 24
Newer products will follow a different evolutionary cycle to that of equities 24
Different products are emerging on the algorithmic use but progression must be hesitant 25
The next generation of algorithms will target greater intelligence to combat competition 26
Customised algorithms 27
Portfolio algorithms 27
Algorithms adapting to events 28
Advanced algorithms moving up the value chain 28
Alternatives to using sell-side institutions are gaining in popularity for algorithm access 28

KEY TECHNOLOGY CONSIDERATIONS FOR ALGORITHMIC TRADING CAPABILITY (TECHNOLOGY FOCUS)
Summary 30
An increased amount of focus is now being placed on effective algorithm implementation 30
Key requirements 31
Demand is increasing for enhanced trading desktop functionality 31
Firms are turning to real-time data analysis tools to enhance execution quality 32
A shift in the use of TCA is occurring 33
The demand for increased latency is driving investment in data infrastructure 34
Architectural structure considerations 36
Greater technological intelligence will be required to obtain superior trading performance 36
Innovative algorithms are emerging 37

US ALGORITHMIC TRADING SPEND (DATABOOK)
Introduction 39
Definitions 39
Sell-side front office trading and market data technology spend 40
Buy-side front office trading and market data technology spend 41
Sell-side algorithmic trading spend, split by product 42
Buy-side algorithmic trading spend, split by product 44

EUROPEAN ALGORITHMIC TRADING SPEND (DATABOOK)
Introduction 46
Definitions 46
Sell-side front office trading and market data technology spend 47
Buy-side front office trading and market data technology spend 48
Sell-side algorithmic trading spend, split by product 49
Buy-side algorithmic trading spend, split by product 50

ASIA-PACIFIC ALGORITHMIC TRADING SPEND (DATABOOK)
Introduction 52
Definitions 52
Sell-side front office trading and market data technology spend 53
Buy-side front office trading and market data technology spend 54
Sell-side algorithmic trading spend, split by product 55
Buy-side algorithmic trading spend, split by product 56

GLOBAL ALGORITHMIC TRADING SPEND (DATABOOK)
Introduction 58
Definitions 58
Sell-side front office trading and market data technology spend 59
Buy-side front office trading and market data technology spend 60
Sell-side algorithmic trading spend, split by product 61
Buy-side algorithmic trading spend, split by product 62

TOTAL ALGORITHMIC TRADING SPEND (DATABOOK)
Introduction 64
Definitions 64
European front office trading and market data technology spend 65
US office trading and market data technology spend 66
Asia-Pacific trading and market data technology spend 67
Global trading and market data technology spend 68
European algorithmic trading spend, split by product 69
US algorithmic trading spend, split by product 70
Asia-Pacific algorithmic trading spend, split by product 71
Global algorithmic trading spend 72

APPENDIX
Definitions 74
Extended Methodology 74
Further reading 74
Ask the analyst
List of Tables
Table 1: Algorithmic trading definitions 39
Table 2: Sell-side front office trading and market data technology spend 40
Table 3: Buy-side front office trading and market data technology spend 41
Table 4: Sell-side algorithmic trading spend, split by product 43
Table 5: Buy-side algorithmic trading spend, split by product 45
Table 6: Algorithmic trading definitions 46
Table 7: Sell-side front office trading and market data technology spend 47
Table 8: Buy-side front office trading and market data technology spend 48
Table 9: Sell-side algorithmic trading spend, split by product 50
Table 10: Buy-side algorithmic trading spend, split by product 51
Table 11: Algorithmic trading definitions 52
Table 12: Sell-side front office trading and market data technology spend 53
Table 13: Buy-side front office trading and market data technology spend 54
Table 14: Sell-side algorithmic trading spend, split by product 56
Table 15: Buy-side algorithmic trading spend, split by product 57
Table 16: Algorithmic trading definitions 58
Table 17: Sell-side front office trading and market data technology spend 59
Table 18: Buy-side front office trading and market data technology spend 60
Table 19: Sell-side algorithmic trading spend, split by product 62
Table 20: Buy-side algorithmic trading spend, split by product 63
Table 21: Algorithmic trading definitions 64
Table 22: European front office trading and market data technology spend 65
Table 23: US front office trading and market data technology spend 66
Table 24: Asia-Pacific front office trading and market data technology spend 67
Table 25: Global front office trading and market data technology spend 68
Table 26: European algorithmic trading spend, split by product 69
Table 27: US algorithmic trading spend, split by product 70
Table 28: Asia-Pacific algorithmic trading spend, split by product 71
Table 29: Global algorithmic trading spend
List of Figures
Figure 1: Trading process 12
Figure 2: Electronic trading growth 2000-2005 13
Figure 3: Algorithmic trading strategy examples 15
Figure 4: Algorithmic trading strategy examples 16
Figure 5: Asian market trading details 18
Figure 6: Investment currently focused on trading tools in the front office 22
Figure 7: The path to algorithmic adoption for equities may not be standard for other products 25
Figure 8: 2006 next-generation broker algorithms 38
Figure 9: Sell-side front office trading and market data technology spend 40
Figure 10: Buy-side front office trading and market data technology spend 41
Figure 11: Sell-side algorithmic trading spend, split by product 42
Figure 12: Sell-side algorithmic trading spend, split by product 43
Figure 13: Buy-side algorithmic trading spend, split by product 44
Figure 14: Buy-side algorithmic trading spend, split by product 44
Figure 15: Sell-side front office trading and market data technology spend 47
Figure 16: Buy-side front office trading and market data technology spend 48
Figure 17: Sell-side algorithmic trading spend, split by product 49
Figure 18: Sell-side algorithmic trading spend, split by product 49
Figure 19: Buy-side algorithmic trading spend, split by product 50
Figure 20: Buy-side algorithmic trading spend, split by product 51
Figure 21: Sell-side front office trading and market data technology spend 53
Figure 22: Buy-side front office trading and market data technology spend 54
Figure 23: Sell-side algorithmic trading spend, split by product 55
Figure 24: Sell-side algorithmic trading spend, split by product 55
Figure 25: Buy-side algorithmic trading spend, split by product 56
Figure 26: Buy-side algorithmic trading spend, split by product 57
Figure 27: Sell-side front office trading and market data technology spend 59
Figure 28: Buy-side front office trading and market data technology spend 60
Figure 29: Sell-side algorithmic trading spend, split by product 61
Figure 30: Sell-side algorithmic trading spend, split by product 61
Figure 31: Buy-side algorithmic trading spend, split by product 62
Figure 32: Buy-side algorithmic trading spend, split by product 63
Figure 33: European front office trading and market data technology spend 65
Figure 34: US front office trading and market data technology spend 66
Figure 35: Asia-Pacific front office trading and market data technology spend 67
Figure 36: Global front office trading and market data technology spend 68
Figure 37: European algorithmic trading spend, split by product 69
Figure 38: US algorithmic trading spend, split by product 70
Figure 39: Asia-Pacific algorithmic trading spend, split by product 71
Figure 40: Global algorithmic trading spend 72
Figure 41: Global algorithmic trading spend, split by product 72
Figure 42: Global algorithmic trading spend, split by product 73




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