Towergroup: spending on OTC derivatives technology will reach $1.3 billion in 2011

Firms are spending more on technology to meet growth in the over-the-counter derivatives market. At the same time, there is pressure on technology firms to produce trading platforms to meet the increasing needs of broker-dealers, according to research by Boston-based financial research organisation Towergroup.

Towergroup predicts that spending by institutional brokers on derivatives trading technology applications will rise by a compound annual growth rate of 9.5% within the next five years, from $915 million in 2007 to $1.3 billion in 2011.

There is currently no single system offering sufficient processing capabilities for the full range of OTC derivatives. According to Towergroup, certain vanilla OTC derivatives products can be handled effectively with existing trading platforms, but processing hybrid derivatives in a standardised manner continues to challenge broker dealers.

“Due to the fast-moving nature of the OTC derivatives environment, the industry is seeing increased spending on technology, as well as increased pressure on technology firms to keep up with derivatives innovation. The successful management of these challenges will enable broker-dealers to reap the rewards associated with this high-growth, high-margin derivatives business,” said Stephen Bruel, analyst in the securities and capital markets practice at Towergroup.