2006 Global Prime Brokerage Technology Survey

May 23, 2006

Abstract

New York, NY, USA June 6, 2006

Celent has conducted a survey of 12 leading Prime Brokerage Providers to assess technology trends in this fast growing and lucrative market.

The hedge fund industry continues to grow at a staggering pace. Hedge funds remain extremely popular investment vehicles despite recent depressed returns and increased regulatory oversight, which threatens to partially lift the veil of secrecy that envelops the industry.

For sell-side firms, prime brokerage is the central component of the drive for higher-margin client services. Although traditional buy-side clients have been squeezing sell-side margins by negotiating more favorable commission structures, hedge funds are willing to pay higher trading commissions for both bundled services and execution.

In the , Celent provides an in-depth analysis of broker-dealer spending trends and development initiatives. According to the report, custom user requirements remain the primary challenge for firms wishing to serve the hedge fund community. Traditional prime brokerage heavyweights and new entrants alike find themselves facing a diverse client base that demands increasingly sophisticated—and customized—applications.

Celent also finds that Prime Brokerage Firms' main technology initiatives over the coming 12–18 months will focus on risk analytics, followed by algorithmic and program trading tools, reporting, and providing clients with web-based access to account information and trading applications.

"The next several years will see a rapid increase in technology development within the prime brokerage community, as firms stake their claim in this lucrative business," says Harrell Smith, manager of the Institutional Securities & Investments group at Celent and author of the report. "While broker-dealers continue to rely on internal staff for key development initiatives, the trend toward outsourcing for both pre-packaged solutions and customized support and development continues."

While firms that have traditionally dominated the prime brokerage league tables continue to reap most of the spoils, the market is becoming increasingly crowded. Celent estimates that between 2000 and 2004, the top 10 prime brokers captured almost 80% of available hedge fund-related prime brokerage fees. As firms aggressively push into the market, investing heavily in technology and consulting services to service the growing crop of hedge funds, entrants will secure a bigger slice of the revenue pie.

The 32-page report contains 23 charts and four tables. A table of contents is available online.

 

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

New York, NY, USA June 6, 2006

Executive Summary 3
Introduction 5
  Prime Brokerage Takes Center Stage 5
  The Rush To Provide Services 8
  Broker-Dealer IT Spending: Internal vs. External 11
2005/2006 Prime Brokerage Survey 13
  Part I: General IT Trends and Sector Growth 13
  Part II: Client-Facing Technology 16
  Part III: Current Operations 21
Looking Ahead: Opportunities For Software Vendors And Service Providers 26
Conclusion 29
Objectivity & Methodology 30

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