The future of the financial connectivity rests in secure, reliable, high-speed, low-latency shared connectivity, and will force firms to rethink the way they develop, deliver and connect to their clients, a report released by a research firm found.
The report “Financial Connectivity: Creating a Frictionless Global Marketplace,” forecasts that the institutional extranet market will grow from $1.5 billion in 2005 to $2.5 billion by 2007, and will be driven by FIX, electronic trading, cost reduction, MiFID and business continuity
“As networks consolidate and membership (brokers, clients, data providers, execution venues and service providers) grows, the ability to connect, communicate and easily obtain and integrate virtually all services through a centrally-hosted connectivity provider will not only increase the value proposition of financial extranets, it will make connecting in virtually any other way almost obsolete,” Donna Miskin, co-author of the report.
The report, lead by Massachusetts-based research firm the TABB Group, found that sixty-nine percent of institutional US equity order flow is currently communicated electronically and projected to rise to nearly 80% in 2007, and estimates that electronically routed buy-side orders will increase from 1.2 billion shares a day in 2004 to more than 3.1 billion shares in 2007.
Miskin warns that the increase doesn’t take into consideration the adoption of the NYSE Hybrid market. “By some estimates, this could double or triple listed volumes and further accelerate the move away from traditional channels,” she said.
The report makes the argument that in a more efficient, shared-network, or extranet, environment, each network participant is connected by one connection. The authors predict that each participant will be able to communicate bilaterally, greatly reducing the number of connections.
The report explained that when extranets gain scale and the benefits of the “network effect” kick in, the network’s value increases exponentially as the number of brokers, clients, data providers, execution venues and service providers on the network as does the network utility.
“The network,” Miskin points out, “becomes a firm’s single connection to the world.”
Miskin predicts that as networks consolidate and membership grows, the ability to connect, communicate and easily obtain and integrate virtually all services through a centrally-hosted connectivity provider will not only increase the value proposition of financial extranets, it will make connecting in virtually any other way almost obsolete.”