The TowerGroup and the U.S. Securities Industry Association have issued a report forecasting much lower technology spending among brokerage firms, and revealing a shift in focus from the Internet to the more mundane back office.

The report, “Technology Trends in the Securities Industry 2001: Investing in Tomorrow’s Infrastructure”, details the North American securities industry’s technology spending, staffing, initiatives, and priorities.

It concludes, “Faced with an uncertain economy, firms will continue to slow the growth in their IT spending well below the 15% to 25% rates that were common over the past four years.” North American securities industry IT spending is expected to hit US$25 billion, but projected growth is slowing to 8% from 17%.

However, the report suggests that firms will not be able to slice spending to the bone as the industry struggles to move to T+1 settlement cycles. “Firms will invest significant resources — capital, technological, and operational — to accomplish this goal.” It notes that, “Once the goal of T+1 is accomplished, however, the industry’s infrastructure will be renewed and in much better condition to support the increasingly fast-paced change that is the hallmark of this industry.”

On the retail side, the report looks at efforts of firms to woo customers back after the boom in self-directed trading has gone bust with the technology bubble. “The desire to provide a better customer experience is clearly evidenced by looking at firms’ technology priorities.”

The report says that, “By 2001, the technology priorities had completely reversed again and while technology budgets are still growing, they are doing so at much slower rates. This year, firms’ major projects are very heavily centered on rebuilding and upgrading their infrastructure for T+1, the acceleration of the settlement period from three days to one day. The survey shows that firms’ major technology projects over the last two years have shifted from an e-commerce and retail brokerage orientation toward enhancing firms’ core accounting and processing systems, upgrading or implementing global processing capabilities, and redeveloping their technology infrastructure.”

The report notes that secondary issues driving IT development include: globalization; the convergence of the banking securities, investment management, and insurance industries in North America; wealth creation and generational wealth transfer; market volatility; and the Internet. The issues continue to force firms to make strategic choices on which technologies best facilitate each delivery channel, product, and support level needed for each client.

The report is based upon a comprehensive survey conducted in April and May of 2001 by TowerGroup for the SIA.