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Management Strategies

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Trading Volumes Keep Industry Rolling

Attendees at the Securities Industry Association conference sense a turnaround.

Things may be looking up in the financial world, if the scene at last month's SIA Annual Technology Management Conference in New York is any indication.

Attendance and exhibition space were both higher compared to last year's event. Furthermore, the quality of attendees also improved, according to industry observers. "There was a lot more activity and lead generation happening at the booths," said Robert Hegarty, vice president, securities and investments, TowerGroup, a Needham, Mass.-based research and advisory firm. "Last year it was a lot of resume passing. That's the sign of a turnaround." Editor's note: For product news from the SIA conference, turn to page 40.

Trading Volumes Rise in Downturn

From an operational perspective, it has been a strange downturn, indeed. Even though market capitalizations of leading companies may have lost their exuberance, that doesn't mean securities firms have had the luxury of slack capacity.

Hegarty recently published a report that illustrates how NYSE and Nasdaq trading volumes have reached historical highs, even as share volumes have been "mostly flat." Trade order sizes have been shrinking as a result of factors such as decimalization, program trading, ECNs, and changing investor behavior, according to Hegarty.

For clearing firms that are compensated on a per-trade basis, that's good news. But for brokerage firms, this situation does not provide relief. In fact, the increased trade volume has made it difficult for firms to scale back systems capacity. After all, an order for 10 shares has virtually the same processing requirements as an order for 1,000 shares.

In fact, firms that have scaled back might find themselves wishing they hadn't. "There are certainly firms out there that have cut excess capacity," said Hegarty. "While a lot of that can achieve some pretty good cost savings, that doesn't come without a price-the ability to handle volume when markets return."

In the meantime, Hegarty recommends two ways that firms can craft their operations to meet the market conditions. The first is to increase capacity, both in terms of hardware and bandwidth. The second is to increase efficiency, by, for example, aggregating trades for downstream processing.

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