Broker spending on technology is one of those topics that rises to the top of the headlines from time to time, particularly given how much the market landscape has shifted in the past several years – and how competitive, regulatory, and new market drivers threaten to change that landscape even more along the road ahead.
So, during the course of developing research on a related topic, we had occasion to expand our modeling in the area of market makers, broker-dealers, and related specialist execution technologies – and stumbled upon a different lens through which to evaluate “broker” spending patterns.
In the following chart, we share a common format for presenting these kinds of figures; a ranking of 5-year average total technology spending by 9 public broker and broker-like companies.
Simple output. Mildly interesting. Ten’s or hundred’s of millions of dollars spent on technology is notable. But, not particularly illuminating. However, as we benchmarked technology spending using employee headcounts – a technique we use regularly – the picture packs an entirely different level of mojo:
Here’s a few takeaways:
- There is a stark line between cutting edge and bleeding edge spending on technology (once you factor in the size of the “broker”). Clearly, the cost of tech infrastructure necessary to distinguish a principal trading operation from an agency trading operation is big – at least 2x.
- Knowing a bit about these businesses – pure play broker or proxy – this ranking is intuitive. There are no surprises, which means that…
- When seeking to identify the technology spending patterns for the majority of brokers – independent of size – who are private, have operations buried within much larger organizations, or otherwise do not disclose this kind of spending data, this methodology is a roadmap.
Fill in the blanks. As always, we can help…