The surging derivatives market will drive increases in IT spending over the next three years as electronic trading, search for alpha and changes to regulations allow their use in pension funds and institutional money management all strengthen the sector.
The research firm TowerGroup says brokerage firms are aggressively bolstering their derivatives staff, and says demand for expertise has driven salaries 30 to 40 percent higher in the last two years.
Global IT spending in derivatives will grow 18 percent annually over the next three years, the company estimates - much faster than the 4 to 6 percent increase projected for equities and fixed income. The firm believes risk management, processing and pricing/analytics will be the main areas of spending.
In addition, the firm says derivatives will drive between 8 to 10 percent of U.S. sell-side revenue this year, which will have "enormous implications" for the decisions sell-side CIOs make going forward. Its says derivatives-related IT spending will grow rapidly on the sell side over the next few years, as is already evident in derivatives rearchitecture projects currently underway on Wall Street.