Friday, December 23, 2005

Firms Expect To Spend $$$ On Market Data Management

© 2005 Euromoney Institutional Investor PLC.

Brokerage firms are bracing to spend as much as $15-20 million each--an increase over the $1-2 million spent this year--on market data management next year in lieu of higher expected trading volumes, analysts said. Firms are handling tens of thousands of quotes daily, and with the passage of Reg. NMS, could see traffic increase 20-fold, predicted Bob Iati, analyst with the Tabb Group. "Once Reg. NMS goes into effect, traders will require information to be processed and stored at the speed of light, and many systems just aren't there yet," he explained. Much of the money will go to outside market data vendors who promise to reduce quote traffic and retain critical information for compliance. But some of the money will be spent internally, several trading executives at large brokerages said.

Under the trade-through rule of Reg. NMS, set to go into effect mid-next year, brokerages will have to route orders to the best-priced venue for top of book, which will generate additional quote traffic. Use of algorithms to mine for liquidity is exacerbating the capacity problem as well: algorithms typically generate many order cancellations as they peek into markets by placing orders, but often pull them out to take them to another market center with a better price. Program trading, which includes algorithms, made up 52.6% of New York Stock Exchange volume last week.

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