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Electronic Trading and Risk Will Continue to See IT Spend

At an event sponsored by Interactive Data at the Nasdaq MarketSite entitled, “Fragmented Liquidity and its Impact on Market Data,” Larry Tabb, CEO of Tabb Group was on hand to present on the topic and share his thoughts on what firms should do coming out of these turbulent market times.

Tabb pointed out that while research is showing that overall IT spending will be down as firms adjust to the post credit crisis environment, two spending areas in particular will actually see increases.

Tabb says firms will continue to spend in the areas of electronic trading and risk management. “As firms cut back on budgets and manual traders are decreased, that will lead to a continued increase in electronic trading,” said Tabb.

In light of capital constraints within the market Tabb also foresees a move to the agency model and a move to more products being traded on exchange. “Brokers aren’t going to be able to take these huge positions and put them on their balance sheets so I see the markets moving to more of an agency model,” said Tabb.

With the continued growth in electronic trading, Tabb said market data message rates will continue to grow. “If firms don’t invest in infrastructure they will lose business,” he said.

Tabb added that it’s a vicious cycle at times like this - if firms cut back on market data spending they will encounter difficulty handling the increasing message rates and their execution quality in turn could suffer. “Executions have become so technologically driven and if you’re at a technological disadvantage there won’t be a way to compete for execution business,” he said.

Risk management, obviously, is another area of continued spending. “Across the board firms are going to be investing in risk,” said Tabb. “How do you write off billions of dollars are not look to change your risk platform.”

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