Tag Archives: Trading software

Financial Industry To Spend $90 Billion on New Technology

Between 2001 and 2005 the financial industry spent billions on developing new derivatives and other complex financial instruments. Nobody really understood what was going on until it all came tumbling down in 2007/2008. Now, something similar is happening; the financial engineering is swapped with pure engineering. The industry is expected to spend $90 billion on new superfast computer systems equipped with artificial intelligence and advanced algorithms that no one – except for the engineers who made them – really knows how works.

“Investors seeking the high returns it can once again provide have come back, and IT investment is slowly growing as a result. By 2012, we expect the market to reach pre-recession levels.”

Daniel Mayo

The financials markets industry’s spending on information technology will hit almost $90 billion by 2015, driven by strong growth in the Asia-Pacific region, and a bounce-back in the hedge funds sector, according to an analysis by the independent technology analysis firm, Ovum.

The analysts find that the Asia-Pacific region will see some of the strongest growth in financial markets IT spend, as global companies continue to transfer power to the region due to its growing economic strength, advancedtrading.com reports.

In China, IT spending will grow by a compound annual growth rate (CAGR), of 8.8 per cent from 2011 to 2015. Meanwhile, Hong Kong will experience a CAGR of 8.1 per cent for the same period and Singapore 7.1 per cent.

Although the amounts invested will be lower, growth in all three will outstrip the US and the UK and Ireland, which will hit CAGRs of 6 per cent and 5.8 per cent respectively.

Daniel Mayo, financial markets technology analyst at Ovum, comments:

“While there will be growth in nearly every major market, the Asia-Pacific countries will be at the forefront. This is mainly due to global companies shifting their decision-making power from New York and London to cities such as Beijing, because of their growing economic influence.”

Meanwhile, global spending on IT in the hedge funds sector will grow a CAGR of 11.1 per cent from 2011 to 2015.

This is the strongest growth of all the lines of business and is being driven by a resurgence in the hedge funds market as investors seeking high returns forgive the woes of 2008/09.

Mayo adds: “The hedge funds market was badly affected by the financial crash, with investors staying away due to its disastrous performance. As a result, investment in IT fell significantly in 2008 and 2009. However, investors seeking the high returns it can once again provide have come back, and IT investment is slowly growing as a result. By 2012, we expect the market to reach pre-recession levels.”

According to Mayo, much of the investment in all regions and lines of business will be made in risk management systems, as well as reporting systems that allow financial markets companies to provide greater transparency and comply with new industry regulations such as Basel III.

Let’s see how long it takes for the law makers and regulators to catch on this time…

More from advancedtrading.com:

Meanwhile, the extreme volatility we’ve experienced over the last few days, are still puzzling many experts.

There’s an interesting article at NorthJersy.com well worth reading.

Here’s some of it:

Wall Street’s wild ride Tuesday may be due less to rational decisions and more to computers automatically trading stocks at lightning speeds.

Large institutional investors like mutual funds often employ strategies to buy and sell stocks or funds at certain pre-programmed prices.

Other traders, meanwhile, employ high-frequency strategies and offload or buy huge blocks of shares in minutes or seconds, depending on how markets move.

“Volatility begets volatility,” says John Longo, a professor at Rutgers Business School.

“No doubt about it, whenever you have these dramatic moves in a short period of time, programmed trading is largely behind it.”

Much of that trading takes place not on trading floors but within vast rows of computer services inside North Jersey data centers.

Years ago, when humans conducted the vast majority of trades on Wall Street, Monday’s roughly 6 percent market plunge and Tuesday’s roller-coaster ride that ended with major indexes recouping much of their Monday losses might have been less dramatic, experts said.

The markets would not have gyrated so quickly, and the ups and downs might have taken place over days, not minutes and hours, experts says.

Some electronic trading strategies involve chasing momentum — automatically buying stocks on their way up or selling as they lose value. And swings in the marketplace will always be driven by economic events — such as Standard & Poor’s downgrade of United States bonds, Europe’s debt crisis and the Federal Reserve’s announcement Tuesday that it would keep interest rates low through 2013.

“Definitely, there will be some events that move markets,” says Frank Zhang, a professor at Yale University’s School of Management who has studied computerized trading, which he estimated accounted for 80 percent of trading volumes (other estimates have pegged it closer to 50 percent.)

Adding: “But I think computer trading exaggerates such events.”

Adam Sussman, a partner at The TABB Group LLC, a Wall Street research and advisory firm, says the high-frequency trading firms feed off Wall Street volatility, which is often fueled by investors’ fear.

“When humans are panicking, the computers do better,” Sussman said.

He didn’t see high-frequency trading as necessarily being responsibility for recent volatility.

“They’re not really causing it, because they’re responding to market conditions,” he says.

I assume some might argue with that statement.

Related by the EconoTwist’s:

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The Stuxnet – Visualized

A video blogger named Hungry Beast is behind this fascinating visualisation of the dangerous computer virusStuxnet – know to be the first cyber weapon ever to be constructed by mankind. You’ll hopefully understand why I’m focusing on what’s going on online at the moment…

Pandora’s box has been opened; on the new battlefield the aggressors are anonymous, the shots are fired without starting wars and the foot soldiers can pull their triggers without leaving their desks.

In June last year, a computer virus called Stuxnet was discovered lurking in the data banks of power plants, traffic control systems and factories around the world. Hungry Beast introduce the video:

Pandora’s box has been opened; on the new battlefield the aggressors are anonymous, the shots are fired without starting wars and the foot soldiers can pull their triggers without leaving their desks.

Last week the United States government announced they would retaliate to a cyber-attack with conventional force. The threat is real, and the age in which a computer bug could cost lives has begun.

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High Frequency Confusion at London Stock Exchange

The London Stock Exchange is in the process of upgrading its electronic trading systems to attract more high frequency traders, and restore LSE’s digital reputation after an embarrassing technological collapse in November last year. But since the upgrade began this week there’s just been one hick-up after another. On Monday the UK exchange was forced to delay the migration of the full UK order book. On Tuesday the closing process was delayed, resulting in confused computer algorithms, wrongfully executed trades and sparking volatility. Today traders was left frustrated by incorrect pricing.

“We are confident with the systems generally and how they’ve performed, given the scale of the project.”

London Stock Exchange


Both Thomson Reuters, Selftrade and TD Waterhouse are warning their clients that they in “some scenarios” are not able to provide correct bid and ask prices, and that there’s no estimates  on when the problems will be fixed. The effect is confused computer algorithms, triggering trades at the wrong time and sparking volatility, the Financial Times reports.

“People were trading at prices they weren’t expecting to be trading at,” one trading expert at a foreign bank in London says.

Other traders, however, say they have seen little disruption: “It’s smooth sailing here,” another trader says.

And – of course – the London Stock Exchange don’t see any problems at all.

“We are confident with the systems generally and how they’ve performed, given the scale of the project,” a spokesperson says. “We have had a constant dialogue with customers and the feedback we’ve had has been very good.” Adding that LSE is looking into the matter, but are still “confident that the system will be okay today”.

Anyway – the London Stock Exchange was on Wednesday dealing with the fallout from another technology glitch as some traders expressed frustration over disruption to the bourse’s closing auction at the close of business on Tuesday, according to FT.

Execution-only brokers including Selftrade are warning that their websites are not showing correct prices.

Thomson Reuters warns clients that its bid and ask prices are, “in some scenarios, intermittently updating with zeros ahead of an updated value,” saying the problem was first identified on Tuesday morning but could not  give any estimate on when it would be fixed.

TD Waterhouse says in a statement: “Currently a technical issue between the LSE and one of our data providers is affecting stop-loss orders on UK stocks. As an interim measure we have taken the decision to manage the existing orders on our book and stop taking new orders.”

Adding: “Customer impact has been minimal as stop orders are a small fraction of our daily trading activity and we working with the LSE and the data provider to fix the problem. We hope to bring this to a speedy resolution.”

The LSE suffered a blow to the credibility of its new technology in November when a two-hour outage hit not long after it had switched to using MillenniumIT technology on its Turquoise trading platform.

Initially the LSE indicated that the problem may have been sabotage but an investigation concluded last month that it had been “human error”.

Wonder what they will come up with this time…

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